NORTH LAUDERDALE — Homeowners who protested rocketing insurance bills based on claims of rising rebuilding costs have sparked a big change at the state's largest insurer.
Citizens, Florida's insurer of last resort with 1.5 million policyholders, announced Friday it will allow qualified appraisals among other options to set premiums -- no longer insisting customers have little choice but to accept results from software known as 360Value.
"We believe that providing these options gives our policyholders and agents more confidence in the valuation process while providing policyholders with adequate protection for their homes," said Citizens President Scott Wallace.
Advocates for homeowners welcomed the news.
"That's totally a win," said former state insurance consumer advocate Sean Shaw. "That's a common sense win."
Citizens said it will accept replacement cost estimates from 360Value, MSB, and e2Value, but also from a licensed appraiser if it is formulated specifically to establish the insurance reconstruction cost rather than market value.
Also acceptable: Estimates prepared by licensed general contractors, architects or engineers which include a contract price for reconstruction cost and an itemized list of the home's features; and a property inspection report dated within the past 12 months ordered by another property insurance company that includes a detailed reconstruction cost estimate.
Citizens made the move even as it was still checking the accuracy of software in the field Friday in South Florida. An appraiser viewed a North Lauderdale home to compare it independently with 360Value data. His results will not be available until next week, but Citizens apparently has already seen enough in special testing it undertook in South Florida and the Tampa area in response to complaints.
Citizens said in late December it decided to review the software "in light of publicly expressed concerns about some of the replacement cost valuations generated by 360Value."
Published reports from around the state have told stories of, for example, Citizens requiring the owner of a home with a $50,000 market value to insure for $138,000. That doubled the total monthly mortgage payment of an elderly woman on fixed income from $250 a month to more than $500.
In another instance, a homeowner said he had an appraisal for $117,000, wanted to insure the structure for $139,000 but Citizens insisted on insuring for $237,000. The extra coverage doubled his annual insurance premium from $900 to almost $1,900, and pushed his potential cost for a 5 percent hurricane deductible from $5,000 to nearly $12,000.
Many residents have questioned how the rising replacement-cost values make sense when existing home prices have been falling for years and the state's construction industry has been hammered by the economic crisis, which has hurt demand for new homes.
Industry groups warn against the risk of underinsuring.
"Rebuilding costs have almost nothing to do with market value," said Lynne McChristian, Florida representative for the industry-funded Insurance Information Institute. "True, it is a dismal real estate market right now, but that is unrelated to replacement and rebuilding costs. An insurance company strives to make sure policyholders are 100 percent protected in the event of a total loss – not more and certainly not less."
Gov. Rick Scott has said he wants Citizens rates to climb to nudge people to private insurers and reduce potential assessments and taxpayer liability if a severe storm hits.
But many residents see few if any better options in the private market. Replacement costs are one way Citizens can raise premiums beyond the 10 percent annual rate increases it is allowed. Another way is reinspections to eliminate discounts for storm-resistant features, which have raised bills an average of 24 percent, or $718 a year, for two-thirds of the 78,000 homes visited. More than 200,000 homes are slated for reinspection this year.
Citizens selected 360Value after a competitive bid in 2010. The software, produced by Xactware of Orem, Utah, is used by insurers representing about 45 percent of Florida's market, and 40 percent nationally, company officials say.
Some consumers think the software is out of whack with reality, and simply represents a way to raise premiums.
"I can see how that would cause concern for people," Mike Fulton, Xactware's assistant vice president of pricing services, said in an interview before the policy change was announced. "The key for them to understand is they are insuring for the cost to rebuild as opposed to market value.
"We survey local builders and equipment suppliers and report that information. We're not seeing 50 percent type reductions you're seeing in market value."
Shaw, who works for a Tampa-based law firm that represents policyholders against insurers, said results did not match real life for ordinary homeowners.
"People would jump for joy if they could