Capitol Preferred says 36.5% rate hike due to lawsuits, AOB claims.

Capitol Preferred Insurance Company asked the Florida Office of Insurance Regulation (OIR) to approve its 36.5% rate hike request based on the skyrocketing number of lawsuits and assignment of benefits claims.

Coupled with three other rate increases made since June 2019, policyholders would see an average 112% rate hike for 28,000 of its customers on their renewals, a Florida OIR actuary said during the rate hike hearing.

Jesse Rehberg, an actuary for the insurance carrier, said the average premium would increase approximately $40 on just the latest request.

Capitol Preferred’s CEO, James Graganella, named three reasons for the need to increase premiums: rising reinsurance costs, assignment of benefits (AOB) claims and first-party lawsuits.

He said 36% of the company’s claims now get called in and represented, when it used to be 4% just a few years ago.

The average non-represented claim is $12,000, while the average for represented claims is double that at $24,000, he said. On water losses, for every dollar the carrier takes in they pay out $1.77, he said.

In 2016, there were a total of 148 lawsuits. By 2019, this number had increased to 1,077, a 727% increase.

“The last 3 years we’ve taken care of over 30,000 insured, paid out over $416M in claims,” Graganella said.

The company has not seen a decrease in AOB claims, with 485 filed in 2019. Average payouts in the last month dropped by about $200, but the number of claims increased at the same time. The carrier has seen little change with AOB legislation.

"It’s having zero effect on claims and minimal effect on the actual negotiations. It’s really too early to tell what the true longevity effects are going to be,” Graganella said.

Former Florida OIR Deputy Commissioner Belinda Miller testified later in the hearing that abuses in AOB continue every day. Roofing companies like this come to homeowners’ doors, promise them the moon to get them to sign papers and then leave. The homeowner doesn’t get a copy of the contract.

“And that contract that you sign is a ticket to sue the insurance company,” Miller said.

One 86-year-old Florida homeowner had just returned home after burying his son in Alaska when a roofing company’s representatives came to his door. To get them out of his house he signed, only realizing what he had done hours later. He called the number they left, but got no answer.

“This 47% is peanuts in the next 12 months if we don’t do something,” Miller said. “It’s going to continue to hurt our consumers unless we do something about it.”

Kayne Smith, an actuary for Property & Casualty Product Review with the Florida OIR, noted Capitol Preferred made the rate hike effective Feb. 15, before a decision on the rate would be made.

“They run the risk of having to make refunds if the approve rate differs from the requested rate,” she said.

Smith said the Florida OIR found fault with the original filing, which called for a 47% rate hike.

“The initial filing lacked attention to detail,” she said.

Rehberg explained the revised rate hike request of 36.5% as adjustments made to actuarial experience, the hurricane loss ratio calculation and capping rates down to the territorial level.

Smith questioned why the carrier didn’t make the filing effective on June 1, which would put it in effect a year later for the consumer. She listed rates hikes starting with June 1, 2019, of 13.5% as an annual rate filing; a limited reinsurance filing for a 11.3% rate hike on Nov. 1 and a third effective renewal rate change of 22.3% on Nov. 18.

“Policyholders with renewal dates between Feb. 15 and May 31 are going to see a cumulative effect of all four filings in their premium renewals,” she said. “Which means their renewal premiums are going to more than double.”

Graganella said they examined the loss ratios and found major increases in several central Florida counties, including 86% in Orange County and 75% in Seminole County.

Susanne Murphy, deputy commissioner Property & Casualty, questioned why Capitol Preferred failed to file for modest rate hikes for several years that would have lessened the impact on the consumer and the carrier?

Graganella said the number of lawsuits has risen by more than 700% in recent years, with claims increasing from 4% to 37%.

“It has just gone into the tank over the last two years,” he said.

Sandra Starnes, director of Property & Casualty Product Review, said the caps put on rates to limit policyholder cancellation on renewals “smacks of price optimization. In areas where the consumer will pay more, you’ll charge more. Areas where the consumer will leave you, you’ll take less.”

Graganella said that the areas with bigger increases are where they are seeing loss ratios run out of control.

“They are just skyrocketing out of sight and I don’t see an end to that unless there’s legislation,” he said.

Areas where selected numbers were lower than what was indicated by actuarial data, like the panhandle, showed they were stabilizing recently and didn’t warrant bigger increases.

The Florida OIR panel questioned the Capitol Preferred team on why they didn’t adopt the Citizens Property Insurance model for water mitigation when other carriers had done so.

“Did you think about doing this before now so you could stem some of the losses you are bringing to us now?” Murphy asked.

Rehberg said company officials didn’t realize they were eligible to adopt the model until Florida OIR staff told them during preparations for this rate hike filing.

It’s been on the news and in many conversations for quite a while that other companies adopted Citizens water mitigation model, Murphy said. 

“For future reference, look at our filings that are online,” she said.

Graganella said Capitol Preferred’s biggest plan to offer consumer’s relief and to control the company’s losses on the program are to shut it down and offer policyholders an alternative program. The new program would have restrictive coverage but with a more competitive rate. This would require approval by the Florida OIR and legislation. 

The company will file its proposal with the agency soon, Graganella said.