Putting the brakes an auto insurance fraud

Posted on February 1, 2012 by lynnem

Florida made the national news last week over its growing problem of auto insurance fraud. CBS Evening News had a segment on scammers cashing in on car “accidents”, and it included an interview with a former scammer explaining how it all works. Much of it has to do with organized criminals who stage accidents with one driver as the hitter and the other as the “hit-ee”, and then a bunch of cohorts jump into the car after the crash to file insurance claims for injuries that are hard to prove, such as soft tissue injuries like a pain in the neck. The real pain in the neck is how the scams are a pain in your wallet. The chart shows how the average cost of an auto insurance claim keeps rising, and since insurance premiums correlate to claims payments, rates rise.

The Insurance Information Institute estimates the “fraud tax” Florida drivers pay at $57.60 per vehicle in 2011, double the cost of fraud from two years ago.

What makes these rising claims even more suspicious is that traffic crashes are declining and cars are  now built to reduce injuries.

Some people think the fraud is a myth, like the person writing a letter to the editor who reasoned that fraudulent auto insurance claims must not be a problem for insurers because so many of them advertise on TV. Hmmm. Advertisements = no fraud? Those TV ads only show that auto insurers are willing to compete for your business. Many times these are national ads that run on the networks coast to coast. (Notice there are few TV advertisements for property insurance, which is not as competitively priced – at least in Florida.) I like this quote from Mark Twain: “Many a small thing has been made large by the right kind of advertising.” Conversely, many big things cannot be made small by a commercial message. So, if you are interested in non-commercial messages, here are two suggestions: Check out the case files on www.GearUpFlorida.com/ and the number of fraud arrests in the PIP Source newsletter, a publication produced monthly by the state’s Division of Insurance Fraud. Fraud detectives routinely arrest 20-30 people every month for criminal activity associated with auto insurance scams.

Here’s another non-commercial source: The FBI says the estimated cost of insurance fraud is $30 billion a year. There’s an FBI news story on the fraud schemes the agency is focused on, including staged accident fraud and bodily injury fraud, to name a few. Its website explains how to defend yourself from insurance fraud, including this FBI tip: After an auto accident, be careful of strangers who offer you quick cash or recommend a particular attorney or health care provider.

Posted in Auto Insurance Fraud | Leave a comment

Florida building codes get top marks, yet lots of homes built before codes got smart

Posted on January 24, 2012 by lynnem

When it comes to building codes, Florida gets an A. Our fair – and increasingly hardy-built – state was one of three states earning more than 90 points on a 100-point rating scale to grade the regulations and processes for residential building construction. The Insurance Institute for Business & Home Safety analyzed state-by-state building codes and enforcement of those codes across all states, and Florida ranks way up there, thanks to building code officials who make the rules stick and contractors who build homes ever stronger.

Building codes exist to increase the safety of structures to reduce deaths, injuries and damage. And, that’s what you want in a place like Florida, where eight of the top 12 natural disasters took a shot at us. University of Florida engineers did a study after the four storms of 2004 showing that homes built under the codes of 2002 sustained less damage on average than homes built between 1994 and 2001. Alas, homes built before 1994 fared worse. That’s because it wasn’t until 1994 that high-wind construction standards were widely used in coastal areas. While it’s certainly positive news that Florida is setting a high standard for new construction codes, it’s important to bring perspective. There are 4.88 million single-family homes in Florida, with the median year built in the 80s, according to the State of Florida’s Housing 2010.  While older homes built decades ago may be solidly constructed, many are not as strong as the new stuff.

Strong homes can save your life and save you money. Owners of newer homes and those retrofitted to stand up to hurricane winds pay less for insurance than people who live in weaker structures. Model building codes are updated every three years, by the International Code Council. The updates reflect the latest science and engineering improvements that reveal better ways to build.

This is making me wish I could trade in my house every three years like other people do with their cars. I’ve been grounded in the same home 21 years and just had a mitigation inspection last week on my 1984-built home which was an eye opener.  More on that in a future blog…..

In the meantime, here’s a link to the IBHS report: Rating the States: An Assessment of Residential Building Code and Enforcement Systems.

Posted in Building Codes, General, Homeowners+Renters | Leave a comment

More eyes needed on insurance fraud, including consumers’

Posted on January 18, 2012 by lynnem

It’s a fact that Florida’s no-fault auto insurance system is flush with fraud. Recently, the Florida Agency for Health Care Administration validated that with a three-day sweep of pain clinics in Miami-Dade County and found regulatory violations in 90 percent of them. In one documented case, an insurance company providing personal injury protection coverage was charged $19,000 for massage therapy. That accident “victim” must have had one heck of a pain in the neck. And, all drivers are paying the bill.

The costs of auto insurance fraud are causing lawmakers to consider bills to tackle the auto insurance fraud problem. But there is fraud in other insurance lines, too. The U.S. Office of the Inspector General has a Top 10 Most Wanted list for health care fraud. Three of the 10 names on the list are Florida fugitives. There is also workers’ compensation fraud, with schemes ranging from fake injuries to stolen identities to shell companies and everything in between. Then, there is property insurance fraud, with wording in state law that sometimes causes a cracked tile claim to fraudulently morph into a major remodeling project.

I just attended a meeting of the Property Insurance Fraud Task Force, organized by the state’s Division of Insurance Fraud, to address the perception that insurance fraud is a victimless crime. In truth, it’s a crime we all pay for through higher rates. Why? Because insurance rates are costs, and if the costs of claims keep rising, so do premiums.

Insurers care about fighting fraud and devote personnel to investigating claims – and state law requires it. The Property Insurance Fraud Task Force has a slogan: “Stomp Out Fraud.” As a member of this task force, I thought one way to do the stomping is to tell stories on what fraud looks like. Here’s one: A public adjuster in Miami submitted paperwork to an insurance company to pay $2.5 million to replace all the roofs on buildings at a country club. The claim was submitted in March 2010 for damage allegedly associated with Hurricane Wilma (yeah, that happened in 2005). This public adjuster said the original roof tile was no longer available, so all the roofs of all the country club buildings needed to be retiled so they matched. Public adjusters, by the way, get paid a percentage of the claim, so getting all the roofs retiled was a nicer payday than just one building. Result: After a state investigation, he was charged with grand theft in the first degree and insurance fraud. You can get the rest of the story to understand how fraudsters pick your pocket.

The story is true. And, I’m telling it to make you stomping mad. If you see insurance fraud, you can report it to the Division of Insurance Fraud or report it to the National Insurance Crime Bureau.

Posted in General, Property Insurance Fraud | 2 Comments

Cracking the code on sinkhole claims

Posted on January 9, 2012 by lynnem

The Tampa Bay Times launched its new name and the New Year with a three-part series on the Great Sinkhole Lottery, titled ”Cracks in the System.” Here – at last – is the “big picture” on what the cost of dubious sinkhole claims is doing to the availability and affordability of property insurance. It was a well-researched and balanced series on how and why people are cashing in on what may or may not be actual sinkhole damage – because they could. There’s a quote from a guy who got a $260,000 payout and decided to invest the money in something other than repairing his home. He is quoted on the front page saying the house can fall into the ground for all he cares because “I made my money already.” Woohoo for him. He’s another lucky winner in the Sinkhole Lottery, and I’m among those paying for his winnings. So are you.

For those living in the It’s-All-About-Me World, which seems to be fairly well populated, it’s okay to take the money and run. They don’t care that insurance is pooled risk and that the reason Citizens Property Insurance needs to raise sinkhole rates is because they took in $32 million in premiums and paid out $245 million in losses in 2010. Is anyone curious about where the money comes from to pay claims 7-plus times greater than what people pay for? It comes from Citizens’ surplus, which is the financial cushion that protects policyholders in case of unexpectedly high claims.  A flattened financial cushion means less money in the rainy-day (aka hurricane) fund and greater chances of assessments. That’s the gravity for people living on Planet All-About-Us.

Reader’s faulty math doesn’t add up

I have a habit of looking at reader comments following insurance news stories to help me figure out gaps in knowledge to address in this blog.  And, I found one from a Times’ reader who “did the math” to prove the misguided premise that insurance policies from Citizens should only cost $163.33 per policyholder annually. The reader divided Citizens’ 1.5 million policyholders into the $245 million in sinkhole losses to get that figure. This person “reasoned” that since the average premium a homeowner pays is closer to $2,000, people were being led like sheep to think premiums are insufficient to cover payouts.  Baaaad math. Several factors were left out of the equation, such as the fact that not everyone buys comprehensive sinkhole coverage because it’s optional – and people who don’t buy it should not subsidize claims payouts to those that do. Second, this math totally ignores that Citizens has other losses besides sinkholes. In fact, a report from Citizens’ Claims Committee showed a nearly 40 percent increase in claims volume overall for the state-run insurer through October 2011. And, this will likely astound astute people: Sinkhole claims for Citizens represent only 6.3 percent of all the 55,280 new claims filed last year. Get this: The #1 cause of loss was water-related – at 40.5 percent of all new claims reported. Weather-related claims represent 26.4 percent, and burglary/theft claims were at 9.2 percent. If you’re going to do the math, add those numbers, too.

Here are links to other parts of the Time’s special report on sinkholes:

Posted in Citizens Property Insurance, Sinkholes | Leave a comment

Silence deafening on bank’s rescinding sinkhole requirement

Posted on December 20, 2011 by lynnem

When Citizens Property Insurance had its sinkhole rate hearing in September, there were people ginning up the hubbub by proclaiming that “people would lose their homes because lenders required sinkhole coverage.” I put those words in quotes since they were spoken by some to fan the flames of public anger over the need for Citizens to get sinkhole rates in line with sinkhole claims being paid out. Truth be told, there appeared to be only one lender that required what we know as optional sinkhole coverage, and that was U.S. Bank. Earlier this month, U.S. Bank rescinded the sinkhole insurance requirement. You’ve probably not heard a peep about that.

It appeared that U.S. Bank stood alone in requiring optional sinkhole coverage as a requirement of its mortgagees. And, obviously, someone finally explained to them that the difference between catastrophic sinkhole coverage and comprehensive sinkhole coverage is the difference between a hole in the ground and a crack in the driveway.

It never seemed fair, at least to me, to blame the state-run insurer for wanting sinkhole rates to match payouts, yet placing no blame on a mortgage company that misunderstood how Florida mandates for sinkhole insurance work. Now, they apparently understand – and the people who bought sinkhole coverage when they didn’t really need it will blame — whom? Citizens Property Insurance? Not fair.

Here’s a link to the bank’s update on sinkhole coverage:
Sinkhole Coverage Update for the State of Florida 2011-48

Posted in General | Leave a comment

No more gambling on luck with state-run insurance programs

Posted on December 7, 2011 by lynnem

There is good luck and dumb luck – and both don’t seem to last. Calls to shrink Florida’s state-run property insurance mechanisms – Citizens Property Insurance and the Florida Hurricane Catastrophe Fund – are coming from smart, practical people who know that luck runs out, and that reality is getting attention.

Running on luck is not what the Florida Hurricane Catastrophe Fund wants to do. If and when a major hurricane strikes, all the good fortune in the world (aka capital) will bring in no more than $7 billion in bonds to meet the Cat Fund’s current obligation of $18.4 billion. By the end of this year, lucky Florida’s Cat Fund will have $8.4 billion in cash, but there’s no way the state will be lucky enough to find investors willing to buy $10+ billion in bonds to close the gap between the cash on hand and the money needed to pay claims after a storm. Shrinking the Fund would mean that insurers would seek reinsurance in the private market, which costs more and those costs will be passed on to consumers.

Obviously, the thought of property insurance rate increases is not popular. An understatement, I know. But there is something worse looming if rates don’t correlate with anticipated losses that come with a hurricane. Debt is the dirty word here. You are still paying for state losses from storms that hit six years ago through assessments (taxes) and will keep on paying for those 2005 storms through 2016. Thinking about how the debt of the state insurance programs will bloom with another storm is driving change to pay it forward.

Pay it forward is what the private market is required to do via regulation and legislation; pay it backward is the way the state insurance programs run, by design – and a redesign appears to be on the horizon. Insurance claims drive premiums, and if enough money isn’t available the year it is needed, the state-run programs collect it on the backend as long as necessary. In a hurricane-prone state like ours, insurers make small profits in most years and take huge losses after major storms. Take a look at the return on net worth chart to see the negative -183% drop experienced in 2004 after four storms that year.

The Office of Insurance regulation issued a report on the bonding and borrowing capacity of Citizens and the Cat Fund early this year, concluding that “strategic methods for encouraging the movement of capital and property insurance policies to the private market should be employed as quickly as possible.” And, that is now a work in progress.

Posted in Citizens Property Insurance, Florida Hurricane Catastrophe Fund, Homeowners+Renters | Leave a comment

Florida 2011 hurricane season uneventful, yet dismissing storm threat is for dreamers

Posted on November 30, 2011 by lynnem

Believing that Florida will never have another hurricane is a lot like believing in Santa Claus. You really want it to be true. And, now that Hurricane Season 2011 is officially over, it’s so delightful to dream that you can forever scratch off your holiday wish list gifts like a whole-house generator or impact-resistant windows. (What?!! I’m the only one asking Santa for those?) We go directly from Hurricane Season to Candy Cane Season, and yet it’s hard to completely deny the reality that the greater distance between past storms may mean we are more unprepared for the next one. Most of us don’t want to think about it, but property insurers in the nation’s most hurricane-prone state cannot take a holiday from catastrophe management.

Your property insurance rates are unlikely to drop after six consecutive hurricane-free years because Florida’s hurricane history shows that seven of the most costly Florida hurricanes occurred in the past 10 years. Insured losses for Florida’s top 10 storms range from $500 million with Hurricane Erin in 1995 to the $23.8 billion in losses from Hurricane Andrew in 1992 (in 2010 dollars).

If a storm identical to Hurricane Andrew hit the same area in the coming year, estimated insured losses would be about $57 billion. That’s what insurers prepare for – and worse. And, keep in mind that this was only a benign season from Florida’s perspective. The fact is this year was extremely active – with 18 named storms, six hurricanes and three major hurricanes, which are storms that reach a Category 3 or higher.

Insurance premiums are based on a history of claims payouts. Today’s rates take into account the future costs of a major hurricane, based on losses paid in the past. Take a look at the return on net worth chart. That tells the story of Florida’s natural disaster risk where years of cash reserves can be wiped out with a single storm – such as in 2004 when the return on net worth was a triple-digit negative at –183.3 percent. Preparing to handle that scenario is what rates are based upon.

Posted in General, Hurricane preparedness, Insuring Florida, Property insurance | Leave a comment

Watch what you heat: Prevent cooking fires

Posted on November 23, 2011 by lynnem

Your kitchen is the most dangerous room in the house. And, it’s about to be the center of activity with the holidays ahead. Cooking fires are the leading cause of home fires, so you need to watch what you heat.

Most house fires are avoidable. A big problem is something I’ll call “distracted cooking,” which is really unattended cooking. I’ve been guilty of this. Once, I was baking Christmas cookies and suddenly remembered I needed something at Walmart. So, I dashed out the door. Because there is no such thing as a quick trip to Walmart, I took my sweet time (having totally forgotten about the cookies), and got a lucky lesson on how to make cookie dough ornaments.

Cooking fires are the #1 cause of home fires, according to the National Fire Protection Association. The NFPA says two-thirds of home cooking fires start with food or other cooking materials igniting. Cooking equipment fires account for 40 percent of all reported home fires and 36 percent of home injuries. The NPA has a fact sheet on home fires showing that three of every five injuries in non-fatal home cooking fires happen when victims try to fight the fire themselves. You do need a fire extinguisher in the kitchen, and here is information on fire extinguishers – what to buy and how they work.

There are cooking dangers outdoors, too. All fingers point to the turkey fryer. Lots of hot oil + a big, wet bird + propane burners = danger: The NPA says don’t do it and warns that 5 gallons of oil is a hazard in and of itself. They suggest an oil-free cooking appliance. The U.S. Fire Administration also has tips on safe cooking behaviors. And, so does actor William Shatner. He has a Fryer’s Club and a YouTube video called “Eat, Fry, Love” produced by State Farm with a cautionary tale.

A homeowners insurance policy covers losses from fire. And, if you have a monitored security and fire alarm, you may be entitled to a discount on your premium. Enjoy the holidays – safely.

Posted in Fire, Homeowners+Renters, Saving money on home insurance | Leave a comment

Social host liability means party not too hearty

Posted on November 17, 2011 by lynnem

It’s holiday party time, and if you are the party host, your responsibility extends beyond figuring out what appetizers to serve with the wine and beer. There is something called “social host liability,” which means at a party where alcohol is served, the hosts are responsible for making sure guests can safely drive home.

There are different legal obligations in each state. In Florida, hosts are generally not responsible for their guests’ behavior. However, if alcoholic beverages are provided to anyone under age 21, and the underage person becomes intoxicated and injures a third party, the host may be partially responsible. He or she can be sued for damages and/or have their driver’s license suspended as penalty. Additionally, if liquor is served to a known alcoholic, and that individual becomes drunk and injures someone, the host may be liable.

Violations of liability laws can bring civil or criminal fines. Plugging liability gaps is something you should address with your insurance agent or company. A standard homeowners policy provides protection for injury or property damage that you or family members cause to others. But the liability limits start at $100,000. Experts recommend at least $300,000 worth of protection, and buying more coverage may make sense. An umbrella policy provides even more protection, including claims against you for liable and slander.

Being a party host is a lot like being a parent. Your influence matters. We have some safe party tips to ensure a fun time is had by all.

Posted in Homeowners+Renters, Social Host Liability | Leave a comment

Code ready with Building Ordinance & Law coverage

Posted on November 10, 2011 by lynnem

What is Building Ordinance or Law coverage – and do I need it? A Connecticut transplant asked that question last week as he was about to close on a newly-built home in Florida. He was looking over his homeowners insurance policy and wanted to understand the terminology. After complimenting him on taking the time to actually read through the policy (which everyone should do), we talked about this coverage which pays for the increased repair costs to meet building codes in force at the time of construction.

If you don’t have Building Ordinance or Law coverage, your homeowners insurance policy will pay only to rebuild what existed prior to the loss – which may not be good enough to comply with current building codes. Building codes change often – and change is good since improvements to the code make a structure safer and stronger. In Florida, building codes are updated every three years and may be amended annually if something in the code needs clarification. Because damaged structures must be rebuilt to the ever-improving building codes, that perfectly constructed 1988 home may not meet today’s construction standards. Even newer structures may not meet current building codes since they change often.  Building Ordinance or Law is extra protection for an additional premium payment to cover the costs of compliance.

Most homeowners policies limit coverage for code upgrades; some policies may exclude it. In addition to providing protection to cover the increased costs of code compliance, Building Ordinance or Law coverage pays if laws or ordinances require partially damaged buildings to be demolished prior to rebuilding.

Unified building codes went into effect in 2002, so if your home was constructed before that, it is wise to talk with your insurance company or agent about the protection you get with Building Ordinance or Law coverage. Florida first mandated statewide building codes in the 1970s, and those codes were strengthened after Hurricane Andrew proved that building code adoption and enforcement were somewhat lax. Now, the Florida Building Commission develops and maintains codes that supersede all local building codes.

Legislation passed in 2005 (SB 1486) requires insurers to give you an opportunity to add, increase or reject building ordinance or law coverage. You can choose Building Ordinance or Law coverage at 25 percent or 50 percent of the amount of coverage you have on the property. For example, if your home is insured for $200,000, this gives you an additional $50,000 or $100,000 more to bring your home up to code, depending on which level of coverage you choose. Ask your insurer about the cost difference between the 25 percent and 50 percent coverage to help you price the extra peace of mind.

The Insurance Institute for Business & Home Safety also has public policy resources on building codes, if you’d like more information.

Posted in Homeowners+Renters, Property insurance, Rebuilding costs | Leave a comment