A state audit released in January could spark a fiercelegislative battle this spring and raises additional concerns aboutthe viability of both Citizens Property Insurance Corp. and theFlorida Hurricane Catastrophe Fund (Cat Fund).

State auditors found that Citizens' policyholders who hirepublic adjusters wind up getting more money for their claims thanthose without public adjusters.

Auditors who work for the Florida Legislature spent monthscombing through claims data filed with Citizens, the state'slargest property insurer with more than one million policyholders.The Office of Program Policy Analysis and Government Accountabilitysorted through more than 76,000 claims filed between March 2008 andJune 2009.

Most of those claims were for non-catastrophic events, butnearly 15,000 of them were for claims related to the hurricanesthat hit Florida in 2004 and 2005. Under Florida law, there is nolimit for when a claim may be filed, although there is a five-yearlimit on filing a lawsuit about a claim.

State auditors concluded that policyholders who hire publicadjusters wound up waiting longer to resolve their claims, withfigures ranging from 132 to 296 days longer than claims withoutpublic adjuster representation. However, the data analyzed byauditors also showed that public adjusters eventually obtainedlarger settlements for Citizens' policyholders than those who didnot use them.

Those who did not use a public adjuster typically received asettlement of $18,659 for 2004 hurricane-related claims versus$22,266 for those who did use one. The difference was even largerfor 2005 hurricane claims. Those policyholders who used a publicadjuster received a settlement typically worth $17,187 compared to$2,029 for those policyholders without a public adjuster. Over halfof the hurricane-related claims examined by auditors were reopenedclaims.

For non-catastrophic claims, auditors concluded thatpolicyholders who use public adjusters received a settlementtypically worth $9,379 compared to $1,391 for those who did not useone. In all instances, the figures do not include the amount thepolicyholder would have to subtract to pay the public adjuster.

Citizens' officials do not dispute the findings of the audit,but warn that the audit was based on raw data that does not give aclear indication of exactly when the public adjuster was hired bythe policyholder.

"We don't know what caused the payment to go up," said ChristineTurner Ashburn, director of legislative and external affairs forCitizens.

Legislative Battle With Public AdjustersLikely

Still, the audit findings could provide ammunition for anotherlegislative battle between public adjusters and the insuranceindustry. Some state officials say that legislators may need toconsider whether there should be limits on how long policyholderscan wait until they file their claims. There is talk of givingpolicyholders just three years to file.

"Five years is too long to allow people to file claims," saidChief Financial Officer Alex Sink, who is charge of licensingpublic adjusters. "You should either know there is a leak in yourroof or there is not a leak in your roof."

The group that represents public adjusters, however, says thefact that they wind up getting more money for policyholders isproof that policyholders should use public adjusters instead ofrelying on adjusters hired by insurers. The number of publicadjusters has substantially increased over the last six years.

What may get lost in the back and forth between the insuranceindustry and public adjusters is the ongoing impact that theseclaims may have on the shaky financial status of both Citizens andthe Cat Fund. Both state-created entities have the power to assessmost insurance policies in the event of large losses.

The Cat Fund — the state-created reinsurance fund — continues todeal with claims flowing in from the eight storms that hit Floridain 2004 and 2005. Members of the fund's advisory council areconvinced that the problems stem from public adjusters convincingpolicyholders to submit questionable claims, especially claimsrelated to Hurricane Wilma, which hit South Florida in 2005. Theargument is that insurers have little incentive to investigate theclaims because they have already reached the deductible limitneeded to get Cat Fund reimbursements.

Cat Fund Executive Director Jack Nicholson, however, says thereis no direct evidence to prove that the continued claims may befraudulent, and he pointed out that he does not have the staff ortime to delve deeply into the claims.

Here is what is clear: The Cat Fund will probably issue at least$400 million worth of bonds later this year to pay off outstandingclaims associated with past storms. The bonds will then trigger anincreased assessment on most insurance policies in the state,including auto insurance policies.

Nicholson said the extra charge, which likely would not show oninsurance bills until 2011, could increase premiums by as much as$15 a year. The Cat Fund has already paid out $9.4 billion relatedto the 2004 and 2005 hurricanes, and there is an estimated $623million in outstanding claims that still need to be paid. SinceNovember 2008 the Cat Fund has been asked to pay 261 new claimsassociated with the two storm seasons.

Wind Mitigation Credits

Another ongoing probe may show problems with a different part ofCitizens' operations — how the carrier has handed out windmitigation credits to policyholders.

More than 450,000 Citizens policyholders receive credits ontheir policies for taking steps to protect their homes fromhurricane wind damage. However, Citizens' officials say they havereceived information that shows there were errors on the forms usedto document the policy discount.

Most of the information is coming from private carriers thathave assumed policies previously held by Citizens. When thesecredits are removed by the private carrier, the policyholder isreturning to Citizens and using the incorrect information on themitigation form, which Citizens is required to accept.

Citizens recently hired a company to oversee a pilot programwhere it will inspect as many as 1,500 homes that have receivedmitigation credits. Citizens' officials will then evaluate whethermore homes should be inspected or whether it should make changes tohow it hands out credits in the future.

Ashburn noted that the impact of wind mitigation credits onCitizens' financial status is much larger than recently approvedrate hikes. The new rate hikes that took effect in January are onlyexpected to generate as much as $140 million, while Citizens ishanding out policy discounts worth about $740 million.