March 9, 2020 • Vol. 98 No. 5
Contents
News & Markets
News & Markets
News & Markets
Florida Carriers Hike Rates Amid Market Turmoil as Ratings Downgrades Loom
HCI Gets Greenlight to Replace Anchor P&C Coverage for 43K Insureds
Reports: Florida Real Estate Could Lose $80B in Value from Sea Rise
8 Windhaven Insurance
12 Altmaier Names Sitte as
4
Ceasing Operations, Assets to be Auctioned Off
Departments 11 People
2 | INSURANCE JOURNAL | FLORIDA MARCH 9, 2020
10
OIR Government Affairs Director
12 14
Water Damage Worries in the Sunshine State
13 Florida Fraud Roundup
INSURANCEJOURNAL.COM
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News & Markets
Florida Carriers Hike Rates Amid Market Turmoil as Ratings Downgrades Loom By Amy O’Connor
I
nsurer requests for substantial rate increases to Florida homeowners insurance premiums are the latest sign the Florida insurance market may be in trouble and there doesn’t appear to be any end in sight. Several years of catastrophes and losses from litigation related to assignment of benefits and water damage claims have been eating at insurers' bottom lines and insurers say they have been forced to respond. If current filings being evaluated by the Florida Office of Insurance Regulation are approved without modification, homeowners could see rate hikes of nearly 40%. Meanwhile, bills before the Florida Legislature designed to reform abuses of the state’s legal system have stalled, giving little hope to the industry that the issue will be addressed this year and increasing the likelihood that rates will continue going up. All of this comes as ratings agency Demotech evaluates the fourth quarter results of Florida carriers and has warned “many” insurer downgrades are likely. In rate hearings before OIR over the last two months, several Florida carriers 4 | INSURANCE JOURNAL | FLORIDA MARCH 9, 2020
explained their filings for rate increases ranging from more than 20% to nearly 40%. Since December, Edison Insurance Co., Capitol Preferred Insurance Co., and Velocity Risk Underwriters (on behalf of National Specialty Insurance Co.), have told regulators that these rate increases are needed for their companies to remain healthy. “Unfortunately, times come that you have to do certain things to increase your rates and make sure your company stays viable and functional and healthy,” said Capitol Preferred President and CEO Jimmy Graganella at its Feb. 7 rate hearing. His company is seeking a 36.5% rate increase on one of its 14 insurance programs covering about 28,000 consumers in Florida. Capitol Preferred is one of many insurers responding to deteriorating conditions in the Florida homeowners insurance market from a combination of AOB, water damage loss claims and several years of major hurricanes, as well as what insurers call “loss creep” from those claims. AOB reforms (House Bill 7065 ) passed last year are expected to help, but insurers say many of these claims could still take years to resolve and will not have an effect on insurer losses in the short-term, thus
contributing to the need for rate increases. Insurers are required by state law to participate in rate hearings before the Florida OIR for any rate increase filings of more than 15%. Florida’s Edison Insurance Co. was the first to go through an OIR rate hearing back in December for a 21.9% rate increase. Representatives with the company told regulators the frequency of water damage losses was largely to blame and that without the recent enactment of AOB reforms, the insurer would have needed a 38% rate increase. Ryan Purdy, Merlino & Associates' principal and consulting actuary assigned to the Edison filing, said AOB reforms have helped but the frequency of the insurer’s water damage losses without an AOB increased 56% over a three-year period, and severity of the claims represented by an attorney increased by about “fourfold.” The company currently gets about a thousand first party lawsuits a year. “While there’s great optimism about how House Bill 7065 will improve the claims environment of the state, it cannot be said with great certainty at this point in time what specific value these savings might be given these uncertainties,” Purdy said. OIR approved Edison’s 21.9% insurance rate filing with an effective date of Feb. 15, 2020, for new policies and March 24, 2020, for renewal policies statewide. At the Capitol Preferred Insurance Hearing on Feb. 7, Graganella said three factors have brought the company to the point of needing a 36.5% rate increase — reinsurance costs, AOB abuse and first party lawsuits. According to Graganella, 36% of his company’s claims are now represented by an attorney; it used to be 4%. “That’s a massive number,” he said. He told regulators AOB reforms haven’t lessened its AOB lawsuits, so far, but it has seen a decrease in the severity of AOB claims. “We are seeing the AOB bill having minimum effect,” he said. “It’s really too early to tell what the true longevity effect’s going to be.” Non-AOB water damage claims are
continued on page 6
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News & Markets continued from page 4 driving much of the insurer’s current litigation and costs, Graganella said, noting the average cost of represented claims is twice the cost of non-represented claims at $24,000. He said the company pays out $1.77 on water losses for every dollar it takes in and has experienced a 727% increase in lawsuits since 2016. “That’s substantial. That’s lawsuits, that’s not cases that are represented files that we are able to negotiate prior to the lawsuit — that’s actually lawsuits,” he said.
'Unfortunately, times come that you have to do certain things to increase your rates and make sure your company stays viable and functional and healthy.' Rising Reinsurance Costs
Florida insurers rely heavily on reinsurance to maintain their surplus and claims paying ability and rising reinsurance costs will also make their cost of doing business more expensive. According to a recent report by AM Best, reinsurance rates are going up after several years of losses and rates are likely to increase by 15% to 20% for the June renewal period. Carriers that depend highly on reinsurance may be most affected, according to Best. Velocity Risk Underwriters, the managing general agency underwriting risk on behalf of National Specialty Insurance Co., said at its Feb. 14 rate hearing that its requested 28.1% rate increase is due to its wind loss ratio and increasing reinsurance costs. The filing is for HO-3 policies for more than 35,000 insureds. The company began writing in Florida in 2016 and has grown to a policy count of 41,753 as of Dec. 31, 2019. Its policies are backed by reinsurance and insurance-linked security capital. Representatives of Velocity Risk said reinsurance costs account for 25% of the needed rate increase. “The reinsurers and the capital base we have would like our competitive position to be better than it is,” said Velocity Risk CEO Phil Bowie. 6 | INSURANCE JOURNAL | FLORIDA MARCH 9, 2020
Market Forces at Work
Barry Gilway, president and CEO of the state-backed insurer of last resort, Citizens Property Insurance Corp., highlighted the Florida insurance market issues during a December board of governors meeting. He cited third quarter underwriting losses of $378 million for Florida insurers and said rate filings are being filed consistently on a monthly basis from 3% to 14.9%. “These rates are absolutely necessary to overall stability to the marketplace,” he said. That stability may be in jeopardy. Insurance Journal reported in January that ratings agency Demotech, which provides financial stability ratings (FSRs) to dozens of Florida domestic insurers, could downgrade as many as 18 of the 46 Florida comapnies it rates in the coming weeks. Demotech President Joe Petrelli outlined several factors in Florida that could lead to ratings downgrades, including abuse of assignment of benefits agreements and first party litigation. He also noted carriers have taken less than needed rate increases to avoid rate hearings, despite a significant accumulation of losses. As a result, rates are below where they should be. “The cumulative impact of carrier acceptance of rate revisions at a percentage change that eliminates the time, effort and expense for a hearing and decision, i.e., less than 15%, has had a cumulative impact over the past several years,” he wrote. Demotech said carriers must take several steps to improve their financial stability, including securing actuarially sound rates at the earliest possible date. In a Feb. 29 update, Demotech President and CEO Joe Petrelli told Insurance Journal the company is evaluating carriers’ fourth quarter results. Its current concern is that “an eco-system built to respond to the impact of natural disasters has been besieged by a series of judicial decisions, eviscerating claim settlement procedures, protocols and practices.” “The ability of the eco-system to protect Floridians has been compromised by a small number of Floridians who have revised the rules of engagement through
judicial decisions and/or utilize litigation as a tool to create claims protocols, practices and procedures in Florida that do not exist in any other US jurisdiction,” he said. Petrelli said in this environment, although very few carriers are likely to fail, “many will be downgraded until the operating environment in which they have the overwhelming majority, often all, of their production, presents them with a realistic opportunity to earn a pre-tax operating profit.”
Legislative Help
Industry representatives were hoping the Florida Legislature would consider legislation during the current session, ending March 13, that would address these issues. Industry advocates said Senate Bill 914 would stem excessive litigation losses and help the state’s private market, but it had stalled as of press time. Florida insurance and business trade groups, including the Florida Association of Insurance Agents, the Florida Chamber of Commerce, the Florida Justice Reform Institute and the Florida Insurance Council, urged Gov. Ron DeSantis to support Senate Bill 914 in letters sent to his office in late February. They said excessive litigation and high attorney fee awards from the state’s contingency fee multiplier needs to be reformed or consumers will pay the price. “As more and more property insurance carriers are found to be financially unstable, they will be acquired or rendered insolvent. Many that remain open will continue to request rate increases of 20 percent, or even higher,” wrote Jeff Grady, president of FAIA. Capitol Preffered’s Graganella said parts of Central Florida are now becoming as hard as areas of South Florida for insurers to offer coverage in due to lawsuit abuse. He pointed to laws that were passed targeting the abuse of sinkhole claims as an example of how issues can be addressed. “We had legislation that got the fraud out of the statutes and all of a sudden we have sinkholes get healed,” he said. “Central Florida’s going to be the next [Miami] Dade County in rates if something is not done.” INSURANCEJOURNAL.COM
News & Markets
Windhaven Insurance Ceasing Operations, Assets to be Auctioned Off By Amy O’Connor
A
uto and home insurer Windhaven Insurance has alerted its agents and employees in Florida that it is winding down the insurance operations of its entities, including Windhaven National Insurance Co., ClutchAnalytics and The Hearth Group, and that its assets are being foreclosed on by a lender intending to sell them. Additionally, Windhaven National Insurance Co., a Texas-based private passenger auto insurer, is being placed into receivership by the Texas Department of Insurance. These moves come less than two months after Florida officials placed the group’s non-standard auto insurer, Windhaven Insurance Co. (WIC), into receivership and began to liquidate that company. In a message sent to agents on Feb. 26 that was obtained by Insurance Journal, Windhaven said it has ceased all new and renewal business for its Windhaven companies, which include Windhaven Insurance Holdings Corp., Windhaven Underwriters, Windhaven Select, Windhaven Claims Management, Windhaven National Insurance Co. and The Hearth Insurance Group. The company writes home and auto insurance in Florida and Texas through these entities. The Hearth Insurance Group is a Floridabased MGA offering homeowners cover8 | INSURANCE JOURNAL | FLORIDA MARCH 9, 2020
age on State National Insurance Co. paper. Windhaven also owns software technology company, ClutchAnalytics, that is domiciled in Texas and builds digital insurance distribution systems. The full message to agents reads: “To Our Valued Agents, This notice is to inform you of important changes that will be occurring to the Windhaven, ClutchAnalytics and The Hearth businesses. We have ceased all new business and renewal business in all FL and TX programs for Windhaven and the Hearth. We are winding-down our business operations. One of our lenders will foreclose on a number of assets providing collateral for its loan. As part of the foreclosure process the lender will sell the foreclosed assets at an auction slated to occur on March 4th. If a sale occurs we expect that the buyer may seek to continue the producer agreements or want to work with you to make new producer agreements. Please note, we cannot guarantee that an auction will occur, that it will be successful or if or which producer agreements a buyer may look to continue. We regret the impact this decision may have.” Employees at the Windhaven Claims Management’s facility in Miami were also told by the company they would be laid off Friday, Feb. 28, 2020. A message to employees said the company had been unsuccessful in its efforts to seek financing to enable the company to continue
operation, and as a result, its lender had started a process to sell certain assets of the company at a public auction on March 4, 2020. “This notice … is to inform you that your position will be eliminated due to the facility shutdown, and the company is forced to lay you off effective February 28, 2020,” the employee message reads. Windhaven National Insurance Co. was licensed in Texas in 2012 to write aircraft physical damage, auto physical damage, automobile liability, inland marine and other coverages, according to the Texas Department of Insurance website. Information about how many policies are currently in force was unavailable at press time. Windhaven National also offers auto policies in Florida through its Florida Windward program and currently has 30,600 policies in the state, as of Dec. 31, 2019, the Florida Office of Insurance Regulation (OIR) told Insurance Journal. The Texas Department of Insurance has filed for Windhaven National Insurance Co. to be placed into receivership. A TDI spokesperson said they are waiting on a hearing to be scheduled on the matter. Tampa, Fla.-based The Hearth Insurance Group has offered homeowners insurance through State National Insurance Co., in Florida since 1990 and also offers coverage in Texas. According to its website, The Hearth Group writes more than $500 million in premium in the state of Florida and has 700 employees. In a statement to Insurance Journal, State National Executive Vice President INSURANCEJOURNAL.COM
Shortly after that, DFS declared the former Florida auto insurer insolvent, and the company was ordered into liquidation. WIC was the carrier for its Windhaven, Icon, Select and Optimum auto insurance programs. DFS was appointed receiver for the purposes of WIC’s liquidation, effective Jan. 6, 2020, and was authorized to take possession of all assets, estate, and property belonging to the insurer. All policies of insurance or coverage contracts that had not expired were canceled as of Feb. 5, 2020. At the time of its WIC rehabilitation order in December, Windhaven told its agents in an e-mail that its other insurance entities, including The Hearth or Windhaven National, were not going to be controlled by DFS and the rehabilitation did not apply to its other companies. Windhaven Insurance reported in a 2019 press release that, along with The
David Cleff said, “We want to assure all policyholders and agents that their insurance coverage and policies written on State National’s AM Best rated A insurance company via The Hearth, an independent Florida based managing agent, remain valid and that the strong security supporting their policies is unaffected. We are actively working on a solution to those services that had been provided by The Hearth Insurance Group via our network and affiliated partners to ensure that the obligations and servicing for all policyholders and agents continue to be fulfilled.” Cleff further noted additional information would be provided soon. The now-liquidated Windhaven Insurance Co. (WIC), which launched in 2005, had about 73,000 active auto policies in Florida as of Nov. 30, 2019. In December, the Florida Department of Financial Services placed the non-standard auto insurer into rehabilitation.
Hearth, it had written close to $2 billion in home and auto insurance premiums since being established in Miami. It also said that Windhaven Insurance had provided coverage to more than 240,000 policyholders through more than 8,000 local independent agents. It held additional offices in Tampa, Fla., and Dallas. The Florida Department of Financial Services said it does not regulate Windhaven National because the company is domiciled in Texas and the receivership is being handled by TDI. OIR said it continues to monitor the situation on behalf of Florida policyholders. “There is a competitive auto insurance market in Florida, and OIR recommends that, if policyholders receive a cancellation notice, they reach out to their agent to find alternate coverage,” a spokesperson told Insurance Journal. Representatives from Windhaven did not reply to a request for comment from Insurance Journal.
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MARCH 9, 2020 INSURANCE JOURNAL | FLORIDA | 9
News & Markets HCI Gets Greenlight to Replace Anchor P&C Coverage for 43K Insureds By Amy O’Connor
T
he Florida Office of Insurance Regulation has approved a plan for Homeowners Choice Property and Casualty Insurance Co., a subsidiary of HCI Group, to provide replacement policies for Anchor Property and Casualty Insurance Co. policyholders. The approved plan provides policyholders guaranteed access to insurance coverage from HCI and was approved Feb. 13, 2020, in a consent order signed by Florida Insurance Commissioner David Altmaier. The approval comes after it was announced that Anchor P&C’s rating would be downgraded and that HCI had entered into a preliminary agreement to acquire its policies. Under the terms of the approved agreement, all Anchor policyholders will receive a notice from Anchor cancelling their current policy effective April 1, 2020. That cancellation notice will be accompanied by an offer letter and declarations page from HCI, outlining their replacement policy, also effective April 1, 2020. The HCI replacement policy will cover the remainder of the original Anchor policy term with identical rates and coverage, OIR said in a statement. HCI said in its own statement that the short-term replacement policies have “substantially the same terms and rates as the cancelled policies and expiring the same dates the cancelled policies would have expired had they not been cancelled.” At the expiration of the replacement policy, eligible policyholders will have an opportunity to renew their policy with HCI. If the renewal policy rate or coverage terms differ from their current policy, HCI will provide policyholders with a notice of change in policy terms, detailing those changes. Anchor will retain liability for policyholder claims arising from events occurring on or before March 31, 2020, and its policyholders will be under no obligation
to accept the replacement policies, HCI and OIR said. Letters from HCI and Anchor were sent to policyholders on Feb. 14 letting them know the remaining premium associated with their Anchor policy will be transferred to Homeowners Choice unless they decline coverage under the Homeowners Choice replacement policy. No action will be required from policyholders for the replacement HCI policy to take effect, other than to pay premiums, if any, that may be due. Policyholders wishing to decline the replacement policy by HCI should contact their agent by March 31, 2020, to find alternate coverage and
request a return of unearned premium. The agreement contains no purchase price for the transition of business to Homeowners Choice, but to encourage a smooth transition, includes a payment based on the premium in force associated with the replacement polices remaining in force at June 1, 2020, HCI said. “We are pleased to participate in this process, which ensures Anchor’s policyholders experience a seamless transition from Anchor to Homeowners Choice and continue to receive quality coverage for their homes,” said Karin Coleman, president of Homeowners Choice. The preliminary agreement with Anchor Property & Casualty Co. was announced by HCI Group in January as ratings agency Demotech stated that the insurer would be downgraded from a financial stabil-
10 | INSURANCE JOURNAL | FLORIDA MARCH 9, 2020
ity rating (FSR) of A, Exceptional, to M, Moderate. HCI did not disclose a purchase price for the Anchor portfolio at the time of its announcement. Demotech said Anchor Property & Casualty’s ratings revision was based upon “significant alterations to its business model,” and said Anchor was committed to a “soft landing” for existing policyholders and claimants. Anchor stopped writing new business within the state of Florida in January. Anchor Property & Casualty was first licensed in Florida in 2014 to write homeowners insurance. At the same time, the company was granted approval by the state to assume approximately 50,000 policies from the residual market insurer Citizens Property Insurance Corp. starting in 2015. The company said then it had $35 million in capital to carry out its growth plans. Demotech also announced in January that Anchor Specialty Insurance, another Anchor subsidiary that serves homeowners in areas with limited capacity, would be acquired by Weston Insurance Co. of Coral Gables, Fla. Demotech said Anchor Specialty would maintain its Financial Stability Rating of A as a result of the acquisition. Anchor Specialty has an additional office in Beaumont, Texas, and is licensed to do business in Arizona, Georgia, Kentucky, Louisiana, Mississippi, Nevada, New Mexico, Oklahoma, South Carolina and Texas. Weston Insurance was formed in 2011 and began writing policies effective 2012. Weston is a focused specialty insurer, underwriting coverage for losses from low-frequency, high-severity natural perils, including hurricane, other windstorm, hail and flood, for properties located at or near the coast. Weston underwrites personal residential, commercial residential and commercial non-residential properties, and is currently admitted in five U.S. states: Florida, Texas, South Carolina, Mississippi and Alabama. INSURANCEJOURNAL.COM
People Florida
Omar Barerra
JAG Insurance Group (JAG) — a South Florida-based
commercial insurance agency with Florida offices in Coral Gables and Delray Beach, and Charlotte, N.C. — has added Omar Barerra to the firm to lead a newly formed division, JAG Financial Services. JAG’s new Financial Services division will focus on providing a broad range of investing and insurance options, including term life insurance, whole life insurance, long term disability, and long-term care. Barerra comes to JAG with prior expertise in the financial services sector. He brings more than a decade of experience, most recently as a financial service professional with Mass Mutual and as a financial auditor for several enterprises, including the Miccosukee Tribe. As the head of the new division, Barerra will handle the policies of clients seeking to secure their financial future by protecting their income, retirement and family. Burns & Wilcox has promoted John Heaner to associate managing director from underwriting manager, commercial insurance. Heaner is based in the Burns & Wilcox Tampa, Fla., office Heaner will oversee and manage day-to-day operations and team growth to support the office strategy. With more than 10 years of underwriting experience, Heaner’s expertise INSURANCEJOURNAL.COM
is in the commercial insurance space and has helped grow the office since joining nearly five years ago. He reports to Rebecca Roberts, vice president, Burns & Wilcox, Florida. According to Roberts, Burns & Wilcox has operated in Florida for more than 30 years and with Heaner’s support, the Tampa office has experienced 15% organic growth in 2019. Burns & Wilcox is a wholesale insurance broker and underwriting manager internationally with expertise in commercial and professional liability, property, marine and personal insurance.
Trevor Burgess
Jim Albert
Jean-Luc Eckstein
Neptune Flood, based in St. Petersburg Fla., has realigned its leadership team, announcing that its CEO and chairman are switching roles. Trevor Burgess will assume the role of CEO and Jim Albert will take on the role of chairman in order to most effectively tackle the next stage of strategic growth post-startup, the company said in a statement. Burgess has experience man-
aging growth technology companies. He previously worked at C1 Bank where he created a nationally recognized financial services technology company and will help to do the same with Neptune. As chairman, Albert will work to increase consumer awareness for the need for flood insurance and expanding the insured base in the United States, Burgess said. The company also hired Jean-Luc Eckstein as executive director. Eckstein joins Neptune Flood from Fortune 500 technology provider, CDW, where he sold software and hardware directly to some large companies in the United States before being promoted to International Client Strategy manager, overseeing a team responsible for cross border technology sales. At Neptune Eckstein will report to Burgess and help to implement Neptune’s strategic growth plans. He will oversee project management including the launch of new technologies and products planned for 2020. Burgess said Eckstein’s experience in software sales and his leadership in developing programs to enhance relationships with distributors will help the company as it expands in 2020 and beyond. Neptune is focused on developing technology to help consumers access insurance coverage for risks including catastrophic flooding. St. Johns Insurance, a privately held insurer specializing in homeowners’ insurance products and services headquartered in Orlando, Fla., announced that Reese
Bowen will retire from the role of president and Jesse Schalk, who joined St. Johns in 2013 as chief financial officer, has been named president by the company’s board of directors. Bowen spent 17 years with St. Johns Insurance and was instrumental in the formation and growth of St. Johns since its inception in 2003. Before serving as the company’s president, he held the role of Underwriting manager. Bowen will remain on the board of directors and assume an advisory position. Schalk will move into the role of president Feb. 1, 2020, leading the firm’s execution of growth initiatives while overseeing underwriting, claims and finance. St. Johns Insurance Company insures home and condominium owners throughout the states of Florida and South Carolina.
Rob Bobyack
The Liberty Company Insurance Brokers has added Rob Bobyack to the firm as a partner at its Moody Insurance Group office. Bobyack began his career in the insurance industry in 1997 as a workers’ compensation specialist and since then has built a brokerage business focused on the auto dealership space with clients in multiple states. According to Jerry Pickett, CEO of The Liberty Company, Bobyack will join Tom Moody to grow Liberty’s presence in South Florida.
MARCH 9, 2020 INSURANCE JOURNAL | FLORIDA | 11
News & Markets Altmaier Names Sitte as OIR Government Affairs Director
F
lorida Insurance Commissioner David Altmaier appointed Allison Hess Sitte as Government Affairs director for the Office of Insurance Regulation (OIR), effective Monday, Dec. 2, 2019. Sitte most recently served as the director of Legislative and Cabinet Affairs at the Florida Department of Veterans’
Affairs and has previously served in the Florida Senate. “Allison has skills and experience which will greatly benefit OIR and I look forward to working with her as we approach the 2020 Legislative Session,” Insurance Commissioner David Altmaier said at the time of Sitte's appointment. The Florida Office of Insurance
Regulation has primary responsibility for regulation, compliance and enforcement of statutes related to the business of insurance and the monitoring of industry markets.
Allison Hess Sitte
Reports: Florida Real Estate Could Lose $80B in Value from Sea Rise
F
looding due to climate change-related sea level rising, the erosion of natural barriers and long-periods of rain pose big economic risks to Florida, particularly to the value of South Florida real estate, according to two new reports. For years, Florida mostly ignored climate change under then-Gov. Rick Scott. Gov. Ron DeSantis has taken a more aggressive stance at tackling the issue, but environmentalists want him to do more. Based on past trends, losses from flooding in Florida could devalue vulnerable homes by $30 billion to $80 billion, or about 15% to 35%, by 2050, according to a report from McKinsey Global Institute. Average annual losses for residential real estate due to storm surge from hurricanes amount to $2 billion today, but that projection could increase to about $3 billion to $4.5 billion by 2050. “Flooding in Florida could not only damage housing but also raise insurance costs, affect property values of exposed homes, and in turn reduce property tax revenues for communities,’’ the McKinsey report said. Furthermore, the impact of a 100-year-storm event could be even more devastating over time, going from $35 billion today to between $50 billion and $75 billion by 2050, the McKinsey report said. A separate report from the climate-risk analytics firm Jupiter Intelligence said the percentage of vulnerable oceanfront properties
affected by extreme flooding will rise in Miami-Dade County from 5% in 2019 to 98% by 2050. By 2050, annual flooding damage county-wide in Miami-Dade County could double, leading to shortages in affordable insurance and real estate market instability, according to the Jupiter report. “Ignoring, or underestimating, the actual economic risk posed by moderate flooding is common to other geographies in the U.S. and around the world,’’ said Rich Sorkin, CEO of Jupiter in a statement. “Almost none of this risk is reflected in prices. Most of this dynamic is not yet understood, nor is it implemented into the decision-making of financial institutions.’’ The report said short-term impacts of
12 | INSURANCE JOURNAL | FLORIDA MARCH 9, 2020
flooding will be felt in the next decade. The impact from moderate flooding of up to one foot in an oceanfront city in MiamiDade County will increase from 13% of total properties to 48% of total properties. Properties at risk from extreme flooding will jump from 5% to 86% of the total. The increased risks of flooding could leave lenders exposed to greater losses and insurers in need of adjusting their pricing to include the greater risks, the Jupiter report said. “Homes, livelihoods, and the viability of financial institutions and the economy as a whole may find themselves under a Sword of Damocles, unaware of the extent of risk they bear, and without time to prepare,’’ said Sorkin. Copyright 2020 Associated Press.
INSURANCEJOURNAL.COM
Florida Fraud Roundup cent until proven guilty. “Fraud has reached epidemic proportions in Florida and scams like this drive up auto rates for every driver on the road. I’m thankful for the hard work of my fraud detectives in tracking these fraudsters down. We must continue to work together to do everything we can to uncover these fraud schemes and bring these scam artists to justice,” CFO Jimmy Patronis said.
Florida Police Sergeant Arrested for Filing Fraudulent Insurance Claim Over Sunken Boat
Florida Business Owner Accused of Evading $200K in Workers’ Comp Premium
A Florida business owner is accused of evading paying nearly $200,000 in workers’ compensation insurance premiums over the course of a year, according to a statement from the Florida Department of Financial Services. Chief Financial Officer (CFO) Jimmy Patronis announced the arrest Feb. 6 of Santos Y. Cardona, owner of YYCS Enterprises Inc., for workers’ compensation fraud after his company allegedly conducted more than $1 million in payroll but reported $59,000 on its workers’ compensation insurance policy. An investigation by the DFS Bureau of Insurance Fraud discovered Cardona allegedly concealed payroll information to avoid paying higher workers’ compensation premiums. Based on financial records from a check cashing store in Fort Myers, Fla., it was revealed that Cardona cashed over $1 million in payroll checks. Cardona later reported payroll of only $59,000, less than what he original estimated to avoid paying $199,515 in workers’ compensation insurance premiums. Cardona was booked into Lee County Jail on February 5 on charges of workers’ compensation fraud and scheme to defraud. If convicted, Cardona faces up to 25 years in prison. Individuals charged with a crime are presumed innocent until proven guilty. INSURANCEJOURNAL.COM
“Workers’ compensation fraud is a serious crime that puts injured workers at risk and drives up insurance rates statewide for honest, hard-working businesses,” Patronis said.
Four Arrested in $230K Staged Accident Fraud Scheme in Florida
Four people in Florida have been arrested on charges of racketeering and conspiracy to commit racketeering for allegedly staging automobile accidents in order to file nearly $230,000 in fraudulent insurance claims, according to a statement from the Florida Department of Financial Services. An investigation conducted by the DFS Bureau of Insurance Fraud in conjunction with the Largo Police Department found that between June 2016 and April of 2019, Aymen Salti, Faiz Salti, Mohammed Salti, and Ayiha Salti staged automobile accidents at multiple gas stations to obtain approximately $230,000 in fraudulent insurance claims. Detectives discovered the items the suspects alleged were damaged were never damaged and fraudulent invoices were submitted to the insurer. All suspects were arrested and booked into the Hillsborough County Jail on February 13 and charged with Racketeering and Conspiracy to Commit Racketeering. Each individual was held on $1.2 million bond. If convicted, they each face up to 30 years in prison. Individuals charged with a crime are presumed inno-
A sergeant with the Tampa Police Department has been arrested on a charge of filing a false and fraudulent insurance claim to defraud his insurance company after his 23-foot boat sank, a statement from the Florida Department of Financial Services said. Shane Gadoury, a sergeant with the Tampa Police Department, is alleged to have renewed his insurance policy and submitted a fraudulent insurance claim the day after his boat sank. An investigation by the DFS Division of Investigative and Forensic Services, Bureau of Insurance Fraud detectives revealed that Gadoury was first notified that his 23-foot boat was sinking and then told the following day that the boat completely sunk. At which point, he requested the local sheriff’s office to check on the boat to confirm it was underwater. Gadoury then allegedly contacted his insurance company to obtain a new policy for $13,000 worth of coverage. The next day, he allegedly submitted a claim for the total loss of his boat. Gadoury was arrested at the end of February and booked into the Hillsborough County Jail on a charge of filing a false and fraudulent insurance claim. If convicted, he faces up to 5 years in prison. Individuals charged with a crime are presumed innocent until proven guilty. “It’s especially heart breaking when a person sworn to serve and protect our communities gets caught up in criminal activity,” CFO Jimmy Patronis said. “We can be proud of the law enforcement teams who worked together to uncover a bad actor from their ranks.”
MARCH 9, 2020 INSURANCE JOURNAL | FLORIDA | 13
News & Markets Water Damage Worries in the Sunshine State
F
lorida is a fantastic place and it is no surprise that people of all ages, especially retirees, are making a beeline to the By Noel P. Hannon Sunshine State, particularly along the Atlantic and Gulf coastlines. From 2010 to 2018, the number of people settling along Florida’s Atlantic coastline increased by about 4 million individuals, according to the U.S. Census Bureau’s latest figures. A recent study projects that 1.9 million more residents will move there by 2040. This mass migration is occurring despite a series of hurricanes in recent years that have damaged or destroyed thousands of homes in coastal communities and caused record flooding. The insured losses added up to make Florida the most expensive state for homeowners insurance, nearly triple the national average. With sea levels rising, and hurricane and other weather events becoming more frequent and severe, homeowners and their insurers are bracing themselves for potential impact. Florida’s weather also provides many opportunities for water damage losses. Windstorms may lead to water damage losses if the wind opens the structure and allows wind-driven-rain to enter the residence. This sort of water damage may be covered if the policy insures the peril of wind, but carriers have the option to exclude wind from their policies in many areas within the state. In recent years, there has been an uptick in claims filed by homeowners for non-weather related water damage caused by plumbing system failures. According to Chubb data, internal water damage comprises 45 percent of all property damage – happening more often than fire or burglary. The damage is often attributable to the age of the plumbing system and its component parts, as well as the location and number of sinks, bathtubs, toilets, washing machines, dishwashers and other water-bearing appliances.
Time Marches On
Prior to the financial crisis in 2007 and 2008, new home construction and existing home renovations in Florida were steadily rising. While the overall quality of these homes and their ability to withstand hurricane-force winds improved dramatically during the early 2000s, the formerly new plumbing systems and appliances have since aged, and in some cases, are reaching the end of their expected lifespan. Water heaters, for example, should be replaced every eight to 12 years. Over time, sediment builds up at the bottom of the appliance, causing the steel tank to gradually rust, crack and eventually leak, which could cause a significant water event in a home. For homes with appliances that are located on the second floor, water from any plumbing leak may seep through to the main floor below causing more widespread damage, driving up the financial severity of the claim. Multistory condos face similar issues, including exposure to plumbing leaks from above units. Homeowners should approach maintenance of these appliances and others as a critical element of their risk management plan. Homeowners insurance policies typically insure the cost of damages caused by non-weather-related water losses like the plumbing failures described above. Such claims are rising in both frequency and financial severity. Chubb data indicates the number of claims exceeding $500,000 doubled between 2015 and 2018 and those above $1 million tripled. Agents should help their homeowner clients in Florida understand their specific exposures and the insurance coverages that can help protect them in the case of a loss. In addition to making Florida homeowners aware of the different coverage options related to wind, water, and other
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risks, agents have an opportunity to help their clients “predict and prevent” any potential damage that may result from these risks.
Preventing Significant Loss Through Coverage and Innovation
Inland homeowners in Florida may not be aware they are also susceptible to hurricane-level wind threats and related water damage. An agent or broker can advise on best practices that may help reduce the risk for wind losses and help ensure that proper insurance is in place. Lastly, agents can help their clients avoid or minimize plumbing-related failures that may result in significant water damage losses through the use of devices that can detect potential water leaks, and shut off the water supply line or alert the policyholder on a personal device that a plumbing leak may have occurred. Although 94% of homeowners have smoke and fire detection devices, only 1.5% have water shutoff devices and alarms. There are also simple, cost-effective ways for homeowners to reduce the risk of interior water damage. Turning off the water main when leaving the home for an extended period of time, draining the pipes on a regular basis, and hiring a plumber to check all appliances and plumbing devices for wear and tear can help homeowners minimize the risk of water damage. By taking proactive steps to mitigate the potential for damage caused by windstorms and water, Floridians will be helping to reduce the average cost of property insurance in their state, while enjoying the bountiful pleasures that Florida has to offer. Noel P. Hannon is executive vice president and chief underwriting officer for North America Personal Risk Services at Chubb. She can be reached at: nhannon@chubb.com. INSURANCEJOURNAL.COM
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