Insurance Journal 2015 Florida Supplement by Insurance Journal

FOCUS ON FLORIDA Citizensâ&#x20AC;&#x2122; News Update Winners & Losers in 2015 Legislative Session Florida Coast Ready for Hurricane Season

FOCUS ON FLORIDA

Inside This Issue June 15, 2015 • Vol. 93 No. 12 • Focus on Florida

FLORIDA COVERAGE 4 Florida Bans Price Optimization 6 Florida Insurers Rock Solid as Hurricane Season Opens 10 FAIA, Lawmakers Work to Promote Careers in Insurance Industry 12 Florida 2015 Legislation Update 12 Scott Vetoes HB 1087, Changes to Citizens Depopulation

Citizens Update: 14 Florida Supreme Court Sides with Citizens’ in Bad Faith Lawsuit 14 Florida Approves Removal of 30,000 Policies from Citizens 16 Citizens Board Approves 2015 Reinsurance Packages, Ends Policy Assessment

18 Florida Fraud Roundup: • More Than 30 Arrests Made in Florida Home Insurance Fraud Investigation • Florida Officials Find 103 Card Skimmers at Gas Stations Statewide • Florida Says Arrests Made in Workers’ Comp Fraud Scam 20 Florida Coastal Communities Rebuild to Resist Future Storms 22 Florida Researcher Debunks Myth of Storm Mitigating Droughts

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News & Markets Florida Bans Price Optimization; Insurers Question Definition By Amy O’Connor

memorandum released last month by Florida Insurance Commissioner Kevin McCarty warning insurers in the state not to use price optimization in rating has gotten cheers from a consumer advocaty group and jeers from an insurance industry trade association that says the definition of the practice used is too vague. The memo, released May 14 by the Florida Office of Insurance Regulation (OIR), was addressed to all property/casualty insurers authorized to do business in Florida to “emphasize the requirements of the Florida Insurance Code in connection with insurers’ use or potential use of price optimization in determining policyholder premiums.” McCarty cited Florida insurance statutes that say OIR is required to review a rate filing to determine if a rate is excessive, inadequate, or unfairly discriminatory in accordance with “generally accepted and reasonable actuarial techniques.” Further, McCarty wrote, the law also provides that a rate shall be deemed unfairly discriminatory to a risk or group of risks if the application of premium discounts, credits, or surcharges among risks doesn’t bear a reasonable relationship to the expected loss and expense experience of the various risks. Price optimization introduces information such as supply and demand or competition into the rating of policyholders. The practice took center stage late last year when the Consumer Federation of America (CFA) charged that insurance giant Allstate was basing auto insurance premiums on the “marketplace considerations” factor. The CFA stated at the time that it had “clear evidence” that Allstate and other insurers were using the practice to increase profits by raising premiums on individuals who are unlikely to shop around to find a better price. CFA said that price optimization is “unrelated to risk to set rate for a particular insured.” The topic has become a controversial one in the months since CFA’s report. So much

so that a National Association of Insurance Commissioners’ (NAIC) task force has begun to examine the practice and is currently working on a white paper on the subject. Since December, California, Maryland, Ohio, and now Florida, have put insurers in their states on notice that their state insurance departments will not approve rate filings that use this practice. “Insurers that have used price optimization in the determination of rates filed and currently in effect should submit a filing to eliminate that use,” wrote Florida Commissioner McCarty in the May 14 memo. “Insurers should ensure that any filings subsequent to the date of this memorandum do not utilize price optimization in any manner.” The problem with McCarty’s warning, says Alex Hageli, director of Personal Lines Policy for the Property Casualty Insurers Association of America (PCI), is Florida’s definition of price optimization isn’t clear, and, as such, the regulator’s assessment could be unnecessarily punitive to insurers and policyholders in the state. “We are concerned that [the definition] is vague and very broad and may implicate some rating practices that are beneficial to policyholders,” he said. Universal Definition McCarty acknowledged in the memo that price optimization does not have a universally recognized definition, but offered Florida’s definition: “In a regulated insurance context and for the purpose of this informational memorandum, price optimization is a process for modifying the insurance premium that would otherwise be charged to an insured or class of insureds in order to maximize insurer retention, profitability, written premium, market share, or any combination of these while remaining within real world constraints. Price optimization utilizes the economic concept of ‘price elasticity of demand,’ which is a measure of the responsiveness of

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the quantity of a good or service purchased to a change in its price.” Hageli said that the vagueness of the memo may cause some insurers to limit their use of other pricing practices that benefit consumers, such as price tempering, in which insurers gradually implement substantial but actuarially justified rate increases in order to mitigate the impact on policyholders, which he says is often times at the behest of regulators.

Based on the memo’s definition of price optimization, this practice could be impacted Hageli said. “The industry defines price optimization rather broadly whereas regulators seem primarily concerned about price elasticity. We share their concerns in that regard, but just worry that the language they are using does not fully account for how the industry defines price optimization.” However, CFA Director of Insurance and former Texas Insurance Commissioner J. Robert Hunter applauded McCarty’s action and called on insurance commissioners around the country to follow his and the three other states’ lead. “Most Americans are required by law to buy auto insurance and by their mortgage company to buy homeowners insurance, and it is terribly unfair and entirely illegal for insurance companies to vary premiums based on whether or not they are statistically likely to shop around,” Hunter said. “It is the obligation of Insurance Commissioners to protect consumers from this kind of price gouging, and we applaud Commissioner McCarty for his action.” Hageli said CFA’s claims about the practice continued on page 8 www.insurancejournal.com

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News & Markets Florida Insurers in ‘Rock Solid’ Shape as Hurricane Season Opens By Barbara Liston

he 2015 Atlantic hurricane season has begun, and a combination of a forecast for fewer-than-average storms and the highest level ever of financial resources on hand in Florida to pay claims may help homeowners and businesses there weather fears of a storm. Florida, the riskiest place in the United States for hurricane strikes, has had nine hurricane-free years, allowing state insurers to build up record capital reserves. But that lucky streak could end at any time depending on Mother Nature. “The state can sleep much easier at night,” said Robert Hartwig, president of the Insurance Information Institute, a trade association. “The insurance industry is rock solid financially.” Hurricane Andrew, the world’s second costliest natural disaster in terms of insured losses, came ashore near Miami in 1992, a year that had been forecast as a mild season. U.S. government forecasters predict another below-normal 2015 season, with six to 11 tropical storms, three to six reaching hurricane status of 74-mile-per-hour (120 kph) winds, due to cooler seas and a strong El Niño effect. Florida officials report some of the Catastrophe Fund has also built up its strongest financial reserves since the 2004 reserves to a record $17 billion, said Jack and 2005 seasons when a rare string of five Nicholson, the fund’s chief operating offimajor hurricanes resulted in billions of dolcer. lars in losses. “Florida remains the single largest market The state-run Citizens Property for property catastrophe reinsurance in the Insurance Corp., which became the largest world,” Hartwig said. insurance carrier in Florida after 2005, has Most homeowners are reduced its number of “Florida officials report some insured through relatively new Florida-based policies to of the strongest financial companies that 592,000, about reserves since the 2004 and insurance opened after most major 1 million less national carriers left the than its peak 2005 hurricane seasons.” state following Andrew in 2012. It says and the 2004-2005 seasons. it now has $7.4 billion in reserves, the high Weiss Ratings, a consumer-oriented agenest level since its creation in 2002. cy, has warned for several years that many Over the years the state’s Hurricane 6 | INSURANCE JOURNAL-FOCUS ON FLORIDA June 15, 2015

of the new carriers started out small and undercapitalized, raising questions about their ability to pay claims in a timely manner. Weiss senior analyst Gavin Magor said preliminary results of 2014 insurance data indicate Florida insurance carriers continue to strengthen incrementally with each hurricane-free year. “Obviously, they’re not where we would like them to be. I’m fairly certain that there will be some struggles for some insurers if we had a major hurricane,” Magor said. Additonal reporting by Bill Cotterell in Tallahassee and David Adams in Miami. Copyright 2015 Reuters. www.insurancejournal.com

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News & Markets continued from page 4 are much ado about nothing. “It all goes back to the question of how you define [price optimization]. There is a gray area of what do these bulletins mean and where is there overlap,” he said. “And that is our overriding

concern. What do you mean when you say ‘price optimization’ and what do you mean when you say ‘maximizing profit?’” Hageli says PCI hopes to sit down with McCarty to get clarification on what exactly

the OIR is classifying as the practice, what maximizing profit means and if the definition applies to all lines or just personal or commercial lines. He said the industry is worried their perception of vagueness in the rules could make them non-compliant without realizing it. “Companies are going to want to be in compliance and in my opinion that won’t be an issue… but it is a question of what compliance is with this,” he said. “It would be helpful if they did release better specificity on what they intend and if we sit down with them that’s what we will ask.” Hunter said insurance commissioners could fine insurers for refusing legitimate orders and have a “full set of options beyond that if an insurer ignores the order, up to and including lifting the license to do business of a recalcitrant insurer.” No Further Comment The OIR says it is required to initiate proceedings to disapprove a rate that it finds on a preliminary basis may be excessive, inadequate or unfairly discriminatory. FLOIR had no further comment on the memo and would not respond to a request by Insurance Journal on what punishments or actions could be taken against insurers in the state that do not comply. CFA and the Center for Economic Justice (CEJ) have written letters to state commissioners and to the NAIC over the past two years calling for efforts to protect consumers from “big data” and other non-risk related strategies for rating drivers. Additional states may not be far behind Florida in issuing warnings. Hunter said New York has issued a call for information and his group is aware of other states that are considering action. “Price optimization by insurers is big data run amok. Consumers are being punished for activities and circumstances without any disclosure or transparency by insurers,” said Birny Birnbaum, executive director of CEJ. “The state actions by four insurance commissioners are the first steps in returning insurance practices to the foundation of pricing insurance based on risk of loss.”

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News & Markets FAIA, Lawmakers Work to Promote Careers in Insurance Industry By Amy O’Connor

he Florida Association of Insurance Agents (FAIA) is celebrating the passage of House Bill 1133, a bill it sponsored in cooperation with the Florida Department of Financial Services. Passed overwhelmingly by Florida lawmakers, the bill currently is awaiting Florida Gov. Rick Scott’s signature (as of press time). The idea for the legislation came from FAIA’s Good Works Fund, created in 2009 as the charitable arm of the association (see sidebar), as a way to better align Florida prelicensing and college coursework. Kyle Ulrich, senior vice president of Public Affairs for FAIA, said DFS had already approached the association about cleaning up the Florida pre-licensing statutes, which presented an opportunity to tie in the insurance workforce development piece. The bill authorizes DFS to waive the state exam for a personal lines agent license if the applicant receives an associate’s degree that includes nine credit hours of approved insurance instruction. Ulrich spoke with Insurance Journal about the legislation and how it will promote careers in the insurance industry. What are the main points of HB1133 and how does it help the Florida insurance industry? The centerpiece of the bill is the work-

FAIA Good Works Fund

he primary focus of the FAIA Good Works Fund is to promote the insurance industry through insurance education, either through scholarships or educational programs. Each year since its formation, the Good Works Fund has created different iniatives to enhance insurance education opportunities and promote the industry to young professionals. Over the last year, Good Works Fund members have gone into state colleges to help develop insurance specialization programs. There are currently seven Florida college partnerships developed by the Good Works Fund with more pending since the passage of HB1133.

force development portion and the college-to-career pathway statute that aligns college coursework with current Florida prelicensing requirements to hopefully incent young people into the insurance field by saying if you take college coursework, either at the state college or university level, and it’s been approved by the department and you obtain your degree, then you will be bestowed a license, whether that be a general lines license or a customer service representative or personal lines license. Why did FAIA decide to develop this legislation now? When the economy is best, it’s probably the biggest complaint or request that we get from our members that, ‘Hey, how can we find more qualified professionals?’ We see it in our members that the workforce is aging, much like many other industries, just given the current demographics of the United States… the Florida legislature was looking at demand and need in industries and [reports] showed that the insurance industry was one of the highest in terms of need for qualified professionals. It’s kind of one of those things that everything just sort of fell into place. How will FAIA work with DFS and the state college system to help them implement the stipulations? There will be a couple different areas that we’ll be working on. First and foremost, the folks that serve on our Good Works Fund, that are on that board so to speak, will be the association’s ambassadors. We’ll be working as liaisons from the Good Works Fund, trying to get folks from

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the companies more involved; and then the department will be working with the state colleges to make sure that the curriculum is setup in a way that aligns with the prelicensing laws. Does the legislation affect an agent’s ability to work in other states or give them licenses in other states? It doesn’t impact Florida agents doing business anywhere else. Each state has their own requirements for nonresident licensure and some have reciprocity with Florida, some don’t. But this would not impact those other states’ requirements in any way. I think the biggest thing that we’re trying to deal with right now is that there are universities in bordering states to Florida that offer risk management and insurance degrees. [DFS] is going to have to look at the curriculum at those universities, and if they believe that that curriculum does in fact cover all of the things that our prelicensing laws require. If so, there might be other universities outside of Florida who would be producing students that would qualify for licensure here in Florida. Will there be a system in place once students have graduated to help them find jobs in the industry? It’s going to be up to us to be working with the state college’s guidance area… that’s just a continued part of the education that the association and the Good Works Fund will be doing with state colleges to make sure that, one, students are aware of the opportunities and get into the program, and then once they’re in the program, building internship programs and making sure that the folks are placed. Hear the full interview on InsuranceJournal.tv www.insurancejournal.com

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News & Markets Florida 2015 Insurance Legislation Update

elow is a list of Florida legislation passed by lawmakers in the 2015 regular session and their status as of June 9. All legislation, if approved by Gov. Rick Scott, has an effective date of July 1, 2015. SB 1094: Peril of Flood; Signed by Governor Specifies requirements for the coastal management element required for a local government comprehensive plan; requiring a surveyor and mapper to submit a copy of each elevation certificate that he or she completes to the Division of Emergency Management within a specified period beginning on a specified date; authorizing the redaction of certain personal information from the copy; deleting a provision that prohibits supplemental flood insurance from including excess coverage over any other insurance covering the peril of flood, etc. HB 4011: Motor Vehicle Insurance; Presented to Governor Revises terms “motor vehicle insurance” & “policy” to remove exclusions for policies that insure more than four automobiles from provisions regulating insurance rates & cancellation or nonrenewal of motor vehicle insurance contracts. HB 715: Eligibility for Coverage by Citizens Property Insurance Corp.; Signed by Governor Removes provision that prohibited certain improvements to major structures from being eligible for Citizens Property Insurance coverage; revises provisions regarding coverage for major structures that have undergone specified changes after a date certain. SB 836: Florida Insurance Guaranty Association; Signed by Governor Revises provisions relating to the levy of assessments on insurers by the Florida Insurance Guaranty Association; requiring charges or recoupments to be displayed

separately on premium statements to policyholders and prohibiting their inclusion in rates, etc.

includes counties & other political subdivisions in provisions prohibiting false marking of goods or packaging with location of HB 157: Fraud; origin; prohibits fraudulent Presented to Governor issuance of indicia of mem Defines “business entity”; bership interest in limited provides for restitution for liability company; specifies certain out-of-pocket costs that electronic statements of victims; requires business are included in provisions entities to provide copies of prohibiting certain false Florida Governor Rick Scott business records of fraudurepresentations; prohibits lent transactions involving identity theft sale of counterfeit security company signs to victims & law enforcement agencies in or decals; increases criminal penalties for certain circumstances; provides exception; continued on page 22

Scott Vetoes HB 1087, Changes to Citizens Depopulation By Amy O’Connor

lorida Gov. Rick Scott vetoed legislation on June 2 that would modify Citizens Property Insurance Corp.’s depopulation program. In his veto letter addressed to Secretary of State Kenneth W. Detzner, Scott expressed his objections, saying the bill “undermines progress in growing the number of property insurance options and reducing assessment risks for Florida families.” Stipulations of House Bill 1087 included: • Authorizing the use of certain policyholder information by private insurers in analyzing risks; prohibiting use of information to directly solicit policyholders; • Allowing policyholders to elect to limit frequency of solicitations for takeout offers; • Providing circumstances under which a policyholder whose policy was taken out to be considered a renewal policyholder for certain rate increase purposes. Scott wrote that the provision limiting the frequency of solicitation for takeout offers (no more than once in a six-month period) was of primary concern to him. “This provision is inherently unfair to Citizens’ policyholders in that it limits pol-

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icyholders’ private market options, which means they miss an opportunity to move to a better property insurance alternative,” he wrote. The Citizens depopulation effort has proven to be successful, yet controversial, in lowering Citizens’ policy count and ensuring the insurer’s ability to pay claims for policyholders that cannot find insurance in the private market. The company announced in March it is the smallest it has been since its creation in 2002, with a policy count of less than 600,000. Scott credited the depopulation efforts with returning Citizens’ policyholders to the private market and reducing the risk of additional assessments for all Floridians. Scott added that creating a process where a policyholder can return to Citizens, even though they are currently insured by the private market, “perpetuates reliance on Citizens, which increases the potential for burdensome assessments on Florida families.” “As alternatives to Citizens continue to grow, state policy must continue to reduce dependency on Citizens, as it is designed to be an insurer of last resort and not the insurer of first resort… provisions of this bill go against the mission and purpose of Citizens,” he wrote. www.insurancejournal.com

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News & Markets Florida Supreme Court Sides with Citizens’ in Bad Faith Lawsuit By Amy O’Connor

he Florida Supreme Court has ruled in favor of Citizen’s Property Insurance Corp. in a bad faith immunity case brought against the insurer by Perdido Sun Condominium Association. The case concerned whether the Florida Legislature intended for Citizens, a state-created entity that provides property insurance, to be liable for statutory first-party bad faith claims as an exception to its statutory immunity from suit. The original case stemmed from a claim by Perdido under a windstorm insurance policy the condo association had with Citizens after 2004’s Hurricane Ivan caused it substantial property damage. Citizens refused to pay its obligation in full under the terms of the insurance policy. Perdido filed a circuit court action to compel such payment and then had to defend that award when Citizens appealed it. The circuit court

ruling to that was upheld in 2009. Following that ruling, Perdido Sun then filed the bad faith claim action, claiming that Citizens was not immune from the statutory exception for any “willful tort,” which Citizens motioned to dismiss with the assertion that it is immune from such claims. However, in 2010 Citizens motion was denied by a threejudge panel in the First District Court of Appeals with the reasoning that Perdido’s lawsuit is within the exception to Citizens’ immunity under Florida Statute. It concluded that the insurer’s “immunity does not extend to the ‘willful tort’ of failing to attempt in good faith to settle claims as provided by section 624.155.” The Florida Supreme Court’s May 14 ruling overturned the First District Court’s ruling. The court stated in its 11 page decision authored by Chief Justice Barbara J. Pariente that it could “find no support that

the Legislature intended for Citizens to be liable for a breach of the duty to act in good faith by allowing its policyholders to bring a statutory first-party bad faith cause of action.” The court said that the Florida Legislature never listed statutory first-party bad faith claims as one of the exceptions to Citizens’ immunity. To the contrary, the legislature chose to immunize Citizens for “any action” it takes in the performance of [its] duties or responsibilities under, which the court said “necessarily includes a breach of the duty of good faith.” If the legislature had intended to exempt first-party bad faith claims, listing this category within the section would have been “a simple and explicit way to indicate this,” according to the decision. Citizens applauded the ruling and issued the following statement to Insurance Journal: “The court recognized that statutory first-party bad faith claims are not an exception to the immunity granted Citizens by the Florida Legislature,” said Dan Sumner, Citizens general counsel. “The unanimous decision confirms Citizens’ longstanding position on this issue.”

Florida Approves Removal of 30,000 Policies from Citizens

he Florida Office of Insurance Regulation has approved the removal of up to 30,000 personal residential policies and 50 commercial residential polices from Citizens Property Insurance Corp. by the following two companies: Heritage Property & Casualty Insurance Co. – approved to remove up to 20,000 personal residential policies (17,500 Personal Lines Account and 2,500 Coastal Account) and up to 50 commercial residential policies (40 Commercial Lines Account and 10 Coastal Account) Southern Oak Insurance Co. – approved to remove up to 10,000 personal residential policies (8,500 Personal Lines Account and

1,500 Coastal Account) Citizen’s Personal Lines and Commercial Lines Accounts are mostly non-coastal properties and the Coastal Account is coastal properties. The take-out periods are July 21, 2015 for personal residential impacting both the Personal Lines/Coastal Account policies and July 14, 2015 for commercial residential impacting both the Coastal Lines/Coastal Account policies. This is part of the state’s ongoing depop-

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ulation effort to reduce the number of policies in the state-created Citizens and transfer them to the private insurance market. This brings the total number of policies approved for take-outs in 2015 to 632,286. By statute, policyholders may choose to remain covered by Citizens during take-out offers. To date, 110,529 policies have been removed from Citizens this year. www.insurancejournal.com

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FOCUS ON FLORIDA 10:04 AM

News & Markets Citizens Board Approves 2015 Reinsurance Package, Ends Policy Assessment

lorida’s Citizens Property Insurance Corp.’s board of governors approved a $3.9 billion risk transfer package for the

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2015 hurricane season that eliminates the potential assessment risk on policyholders in the event of a 1-in-100 year storm.

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5/27/15 3:23 PM

By unanimous vote on April 30, board members approved a package that includes $1.855 billion in traditional reinsurance and $2.05 billion in capital market catastrophe bonds. The combination bolsters Citizens’ surplus and existing risk transfer resources to enable it to pay claims in the event of a “storm of the century” without having to levy assessments on policyholders, the company said in a statement. The 2015 package represents an increase of $636.5 million from the $3.269 billion in reinsurance protections secured for the 2014 hurricane season. The 2015 package includes an additional $300 million in capital market coverage that can be tapped to pay losses following a named storm. The vote allows Citizens to eliminate potential assessments that in 2011 totaled $11.6 billion. Coupled with an increasingly robust private market that has allowed Citizens to reduce its policy count and exposure, the additional coverage puts Citizens in the best financial shape since its creation in 2002, Citizens Chairman Chris Gardner said following the vote. “Eliminating the risk of assessments on Citizens customers and Florida policyholders has been the top priority for Citizens over the past several years and I’m happy to announce that we have reached that goal,” Gardner said. “As the private market continues to strengthen, Citizens gets closer and closer to returning to its traditional role as the state’s residual carrier.” Along with better pricing, the 2015 risk transfer package increases coverage for multiple events and expands protections for commercial nonresidential policies. www.insurancejournal.com

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Florida Fraud Roundup More Than 30 Arrests Made in Florida Home Insurance Fraud Investigation Florida CFO and State Fire Marshal Jeff Atwater, alongside Miami-Dade State Attorney Katherine Fernandez Rundle, has made 30 more than arrests during the second wave of a collaborative state and local operation known as “Operation Flames and Floods.” The investigation exposed an extensive scheme in which Miami public adjuster Jorge Espinosa allegedly recruited homeowners to stage fire and water damage claims in residential homes in order to defraud multiple insurance companies. Officials said Espinosa was previously arrested in February 2014 for crimes related to this fraud ring and they have since uncovered 25 more fraudulent claims tied to Espinosa, representing total losses of more than $14 million. “It is clear that this scheme was driven by greed, and unfortunately, it is the honest policyholders in our state who are left on the hook to cover the millions of dollars that were stolen,” said CFO Jeff Atwater. Atwater praised the investigators, and thanked the Miami-Dade Police Department’s Arson Unit and Miami-Dade County State Attorney Katherine Fernandez Rundle for their support. “These insurance thieves were making their money by reaching into the wallets of every honest citizen of Florida”, said Fernandez Rundle. “Their profits come from our pain and hard work. That is why these arrests are so important.” Officials said Operation Flames and Floods began in November 2012 as a joint investigation between the Florida State Fire Marshal’s Office and the Miami-Dade Police Department’s Arson Unit. In February 2014, 14 people were arrested after 13 homes were intentionally set on fire and five more reported staged water damage. As a result of the fraud, multiple insurance carriers incurred more than $7.6

million in reported losses, according to state officials. They said further investigative efforts uncovered 25 more claims tied to this fraud scheme, representing an additional $6.7 million in fraudulent claims paid by the following companies: Tower Hill Insurance Group, Citizens Property Insurance, Federated National Insurance, GEICO, Bankers Insurance Group, Southern Fidelity, Mercury Insurance, State Farm, Florida Peninsula, Ascendant Commercial Insurance, United Property & Casualty, Ark Royal Insurance and Southern Oak Insurance. “Insurance fraud is not a victimless crime,” said Tower Hill President Don Matz, in a statement on the arrests. ”In fact, it impacts insurance policyholders around the state through increased rates that are required to recoup the funds stolen through these fraudulent acts.” Citizens had a similar response. “We applaud the efforts of CFO Atwater’s office and the Miami-Dade State Attorney Katherine Fernandez Rundle, and we are glad to have played a part in this investigation,” said Joseph Theobold, Citizens Director of Special Investigations. “Insurance fraud translates into millions of dollars in costs paid by our policyholders. We must remain diligent in rooting out fraud.” The Sarasota, Lee, Collier and Highlands County Sheriffs’ Offices assisted with the arrests, along with the Florida Fish and Wildlife Conservation Commission. Florida Officials Find 103 Card Skimmers at Gas Stations Statewide Officials with Florida’s Department of Agriculture say 103 skimmer devices that are used for identity theft have been discovered at more than 7,500 gas stations it inspected. The agency’s report came after three months of investigation by inspectors who visited 7,571 stations in a statewide sweep.

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It was part of an initiative with the Florida Petroleum Council and Florida Petroleum Marketers and Convenience Store Association to educate the industry about ways to protect consumers from skimmers. At least one skimmer was found in 29 Florida counties. Miami-Dade had the most with 16, followed by Palm Beach with 11 and Broward with nine. Six skimmers apiece were discovered in Brevard, Hillsborough and Orange counties. Copyright 2015 Associated Press. Florida Says Arrests Made in Workers’ Comp Fraud Scam The Florida Department of Financial Services’ Division of Insurance Fraud (DIF) said it has arrested Juan C. Garcia, owner of Construction Forever LLC, for his alleged involvement in a workers’ compensation insurance fraud scheme. Officials said that the investigation conducted by DIF revealed that Garcia provided false and misleading information on his application for workers’ compensation insurance with the intent to lower premium costs. By falsely deflating his company’s reported payroll and claiming less than $150,000 in payroll costs, Garcia secured a workers’ compensation policy that did not adequately cover the needs of his construction company. Investigative efforts later revealed an elaborate scheme that concealed an accurate payroll of more than $2 million through the use of check cashing stores, according to officials. They said Garcia’s actions caused a loss in excess of $350,000 to the Traveler’s Insurance Co. and the Florida Workers’ Compensation Joint Underwriting Association. He will be charged with one first-degree count of the following: worker’s compensation fraud, grand theft, and organized scheme to defraud. His accomplice, Amaldo Pena, faces similar 2nd degree charges. The defendants were arrested and booked into Miami-Dade County Jail. www.insurancejournal.com

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News & Markets Florida Coastal Communities Rebuild to Resist Future Storms By Mike Schneider, Jennifer Kay and Melissa Nelson-Gabriel

ince eight hurricanes whipped through Florida during back-to-back seasons a decade ago, causing $33 billion in insurance claims, the state’s coastal communities have added an additional 1.5 million people and almost a half-million new houses, an Associated Press analysis shows. But experts say the risk of catastrophic destruction hasn’t grown along with the new development because Florida builders are doing a better job of making structures hurricane-resistant. The improvement derives from Florida’s statewide building code, which was implemented in 2002, a decade after Hurricane Andrew’s 165-mph winds gutted parts of South Florida. The code means that all new structures get tough inspections and are built with shatter-proof glass and straps reinforcing the connection between roof and walls. More than twothirds of Florida’s almost 20 million residents live in coastal counties. “The building code changes have made a huge difference,” said Shahid Hamid, a professor at the International Hurricane Research Center at Florida International University. “You have more houses being built, and that certainly means more exposure and losses will go up, but on the other hand, the houses that are more recently built are better built and can perform better in hurricanes.” The stronger building standards haven’t translated into reduced insurance premiums. Florida homeowners still pay about twice the national average for insurance, and rates in the Sunshine State are still the most expensive in the nation. Although Florida’s building code hasn’t

been put to a widespread challenge, it did pass a limited test when Hurricane Wilma blew across the state in 2005. The hurricane made landfall in southwest Florida’s Collier County, home to Naples, and then weakened as it chugged across the state toward Broward and Miami-Dade counties. Even though the hurricane was much fiercer in southwest Florida, Collier County only had $408 million in claims compared to more than $3 billion in Broward County and $2 billion in Miami-Dade County. Collier County had much newer buildings that had been constructed using the code compared to the two South Florida counties, whose dwellings were significantly older. Here is a look at two Florida regions that have seen tremendous growth since the busy 2004 and 2005 seasons.

South Florida The three counties that make up South Florida – Broward, Miami-Dade and Palm Beach – account for more than half of the $337 billion increase in property values along Florida’s coast in the last decade. The values of all properties in Florida’s coastal counties reached $1.5 trillion last year, according to AP calculations based on Florida Department of Revenue data. Parks have been added between buildings and Biscayne Bay in Miami. The green spaces appeal to luxury home buyers looking for urban amenities within walking distance, but they also act as buffers against storm surge, said Carlos Rosso, whose Miami-based development company has built gleaming, waterfront condominium towers from Miami to Fort Lauderdale in recent years.

20 | INSURANCE JOURNAL-FOCUS ON FLORIDA June 15, 2015

“We are trying to create a little more conscientiousness about it,” said Rosso, president of the condominium division of The Related Group. The new buildings have largely empty ground floors in case of flooding and residences constructed on floors well above storm surge projections. They’re also equipped with emergency generators and shatter-proof glass windows, all to minimize damage from even the worst of storms. Panhandle Developers have built a secluded string of beach communities lined with multimillion-dollar residences between the high-rise condominiums, chain restaurants and miniature golf courses from Destin in the west and Panama City in the east. The beach communities have become home to wellknown politicians, professional athletes and Nashville recording stars. Property values in the two counties that stretch between Destin and Panama City _ Bay and Walton counties – have jumped by more than 50 percent as a result. Along the far southern coastal part of Walton County, real estate development is now worth $13 billion, said the County Commissioner Cindy Meadows. “We are seeing a different sort of house,” Meadows said. “Most use concrete piling and all of the latest hurricane reinforcements.” Homeowners paying $3 million or more for a vacation home understand the risk of investing in hurricane-prone areas, and the strengthened building codes give confidence that the structures can withstand high-intensity storms, said Scott Kurfirst, co-founder of Coastal Elements Construction, which builds beachfront mansions. Builders use straps reinforcing the connection between roof and walls throughout the homes and a lot of reinforced concrete. “It isn’t a huge concern that buyers talk about,” Kurfirst said. “The structures are incredibly solid.” Copyright 2015 Associated Press. www.insurancejournal.com

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News & Markets Florida Researcher Debunks Myth of Storms Mitigating Droughts

opular opinion says that tropical storms and hurricanes that make landfall mitigate droughts in the southeastern United States. But that simply isn’t true, according to a Florida State University researcher. Vasu Misra, associate professor of meteorology, disputes the commonly held belief in an article published in the journal Climate Dynamics. “The perception that land-falling tropical cyclones serve to replenish the terrestrial water sources in many of the small watersheds in the southeastern U.S. seems to be a myth,” Misra said. “This perception is widespread because the southeastern United States has the largest share of land-falling tropical cyclones in the country.” Misra and Satish Bastola from Georgia Institute of Technology examined historical rainfall records and from that, created a soil moisture-based drought index for 28 watersheds across the southeastern United States for a 58-year period. They then reconstructcontinued from page 12 fraudulently obtaining goods or services from health care provider; expands specified identity theft offenses to include all persons rather than being limited to natural persons; prohibits knowingly providing false information that becomes part of public record to facilitate or further commission of certain offenses. HB 165: Property and Casualty Insurance; Presented to Governor Restricts to certain property rate filings a requirement that the chief executive officer or chief financial officer and chief actuary of a property insurer certify the information contained in a rate filing; Also requires an insurer to employ in certain rate filings actuarial methods, principles, standards, models, or output ranges found by the Florida Commission on Hurricane Loss Projection Methodology to be accurate or reliable in determining probable maximum loss levels, etc.

ed the database by eliminating the rainfall on days when a tropical storm or hurricane had made landfall. The end result? Soil moisture levels in these watersheds remained about the same. That’s because the atmospheric circulation during summer droughts often create favorable conditions for steering a tropical storm or hurricane away from land. Additionally, when tropical cyclones do make landfall, it is usually during a season when the soil is already wet. The additional saturation does nothing for the overall soil moisture conditions, Misra said. According to the National Oceanic and Atmospheric Administration, 37.4 percent of the contiguous United States was experiencing moderate drought at the end of April. HB 189: Insurance Guaranty Associations; Presented to Governor Revises definition of term “asset” to include Florida Insurance Guaranty Association assessments for purposes of determining financial condition of insurer; transfers provision relating to obligation of Florida Life and Health Insurance Guaranty Association to pay valid claims. SB 252: Insurance; Signed by Governor Increases the number of years that a specified examination report remains valid and may be considered for the purpose of applying for a certificate of authority; providing that the absence of a countersignature does not affect the validity of a policy or contract of insurance; providing that the term “financial guaranty insurance” does not include guarantees of higher education loans unless written by a financial guaranty insurance corporation, etc.

22 | INSURANCE JOURNAL-FOCUS ON FLORIDA June 15, 2015

For the 2015 Atlantic storm season, which began June 1, the Weather Channel has projected a total of nine named storms, five hurricanes and one major hurricane. The 30-year average is 12 named storms, six hurricanes and three major hurricanes. This study was funded by the NOAA and the U.S. Geological Survey. Sources: Florida State University, Climate Dynamics HB 273: Insurer Notifications; Presented to Governor Authorizes policyholder of personal lines insurance to elect delivery of policy documents by electronic means; defines “optional coverage”; revises requirements applicable to insurers when providing notice of change in policy terms for renewal policy to include requirement that notice be an advance notice; authorizes such notice to be sent separately from notice of renewal premium within specified timeframe; requires insurer to provide sample copy of notice of change in policy terms to insurance agent at specified time; prohibits use of such notice to add optional coverage that increases policy’s premium unless policyholder approves additional optional coverage. HB 1133: Division of Insurance Agent and Agency Services See page 10 www.insurancejournal.com

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