Non-weather related water loss insurance claims in Florida are on the rise. So says Chief Financial Officer Jeff Atwater who heads up the Florida Department of Financial Services. The problem is so great that his Florida Consumer Advocate, Ms. Sha’ Ron James called for a summit and invited all stakeholders to attend.

Mr. Atwater is not the only one sounding the alarm on water damage claim issues and its companion Assignment of Benefits (AOB).  Based on my following the news on this hot topic it seems most insurance carriers in Dade, Broward and Palm Beach county areas are all in agreement that the situation is getting out of control and in fact may be critical, requiring rate increases and further reductions in insurance property policy coverages for water losses.

Remember that the most frequent type of loss and covered peril reported to insurance companies is in fact losses from water.  So the reduction and price hikes to Floridians should be a major concern to all property owners, business owners and anyone that has their future tied to the economy of Florida.

To get a better understanding of the issues and possible solutions on the causes of all these non-weather related water claims, the DFS/OIR held a forum in Boca Raton on 6/14/2016 that allowed stakeholders to express their views, offer solutions and opine on this insurance crisis. So is the increased volume of water claims being filed and the costs in billing for repairs and mitigation real or a made up ploy by the insurance industry to raise rates and cut coverage? The “Troubled Water” forum was televised on The Florida Channel and is available in a two-part segment as an educational resource for those who could not attend or watch the live broadcast version.  See Part 1            See Part 2

Having watched both sessions, I encourage anyone who has insurance coverage on real or personal property, as well as people in the trade such as adjusters, contractors, agents, etc., to take the time to watch the various parties speak and learn from the data that was presented by various state officials and others in this forum. One way or another, change is coming and the insurance consumer as well as folks in the trade will be affected one way or another.

While a lot of territory was covered with not surprising disagreements among the various groups and stakeholders in attendance, some positions and dialogue stood out for me and I want to share them with you.

First, the state officials came well prepared with Power Point presentations loaded with charts and graphs, some as a result of a data call sent out to insurance carriers requesting information on water loss notices, lawsuits filed, claim payment amounts, delay time in reporting claims, etc.  Most of the data helped support the insurance industry’s position that the water crisis was centered in the tri–county area of Dade, Broward, and Palm Beach County and the conclusion was that things are out of control. It was duly noted that the water crisis was not limited to these three counties and starting to infiltrate other areas, notably Hillsborough County to name one that showed a significant upward trend for notice of loss of water claims. So if one can believe the data, something nefarious may well be happening.  And remember, state officials such as former Insurance Commissioner Kevin McCarty as well as the current head of Citizens Property Insurance Company have on many occasions in the past linked the explosion of water losses to the dreaded “fraud” word.

Often these gentlemen mention in their missive fraud examples, who may be involved in this conduct which include “shady lawyers,” “crooked contractors,” “unlicensed loss consultants,” “illegal referral fees (a.k.a. kickback schemes)” and of course not to be left out of the equation, “public adjusters.”

But wait--one presenter on the State payroll presented his charts and graphs and at least from a criminal/arrest and prosecution perspective, it’s clear to me that insurance fraud involving water losses was not on his department’s radar. Please take the time and listen to Florida Director of the Division Insurance Fraud, Mr. Simon Blink’s presentation. His presentation is in part one, and trust me, this is important to understand how the alleged fraud from water claims is played out as it relates to criminal fraud.

To put things in context, Mr. Blink gave a summary of the definition of insurance fraud, which means: “providing false information to gain benefits a person is not entitled to.”  Well that sounds fairly easy to ferret out. Just identify who provided false information, so that a person who is not entitled to benefits receives those benefits. In the context of an insurance claim the identification of those folks is about as transparent as it gets. The person who provides false information will be known to the insurance company and certainly the person to benefit will likewise be known.  Heck, their name will be on the check!

So why is it that the state fraud investigator department is not on the same page as the insurance industry and others who hold state jobs when it comes time to root out all the bad actors that are supposed to be involved in the water/Assignment of Benefits alleged crisis.  Fraud is fraud, or so it would seem given the definition Director Blink read aloud during his presentation.

Could it be that the fraud folks are just too busy with 16,000 complaint referrals they say they get on a yearly basis? Mr. Blink says that PIP is number one, followed by application fraud and close behind is workman’s compensation fraud.  He goes on to say that with only 112 statewide investigators, they have to set some threshold as to the type of cases they can handle. Fair enough, 112 people looking at 16,000 cases seems to be an impossible task, especially if you have to investigate and present the findings to state prosecutors with the hopes of a conviction.

But here is the real kicker--the fraud unit depends on the insurance industry through their SIU (Special Investigation Units) to properly investigate, perfect and forward the investigation to the State Fraud Division. How is that working out?  Well, only one-thousand cases were referred on the homeowners’ line of insurance in the last 12 months. 36 to 85 of those were for possible water extraction fraud, 40 to 80 were for plumbing and trenching issues and roughly 600 were for water /AOB concerns.  Of all of these, less than 200 were in an active investigative stage or waiting to see if any prosecutor would file charges.  Interestingly, there was no mention of the actual conviction rate if a case went to trial or the defendants pleaded guilty.

So there you have it. If you believe the insurance industry, there is fraud. But from the state’s fraud division no one is refereeing water fraud cases from the carrier side even though they have an obligation to have a special investigation unit actually investigate suspicious claim activity.  It appears that even if they did, the state fraud staff is over worked and I would guess under paid.  So given the unlikely possibility of an arrest, my guess is some folks would consider water losses along with an assignment of benefit provision like shooting fish in a barrel. Especially for all those “shady lawyers,” “crooked contractors,” “unlicensed loss consultants,” “illegal referral fees a.k.a. kick back schemes,” and of course not to be left out, some off-the-reservation “public adjusters.”  

Will the “Troubled Waters” Summit with all the presentations and opinions that were voiced change anything? Maybe, but at best it may result in more bureaucratic rule making and perhaps some added legislative  statute changes that will go unenforced (remember those 112 investigators looking into 16,000 referrals) and for sure, higher premiums and more cutbacks in coverages for the consumers.

In closing, the folks from The Florida Association of Public Adjusters did an outstanding job framing a number of these issues.  As to the insurance industry side, not so well given the disconnect regarding fraud, especially when the data from the State Fraud Unit is considered.  I encourage folks to watch the two-part presentation on the “Troubled Water.”  You will likely be troubled by what you watch and hear.