June 1, 2020 • Vol. 98 No. 11
Contents
News & Markets
News & Markets
News & Markets
Florida Agency Reps Can Continue to Work Remotely During Health Emergency
Market Study to Look at Citizens Property Insurance Exposures
Florida Regulator to Monitor Capitol Preferred Operations as Insurer Sheds Policies
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8 Florida Sets Standard
for Flood Insurance Innovation as Risk Rises
10 12
How Florida’s Strained Insurance Market is Facing COVID-19, Hurricane Season
16
18
Pandemic Disaster Planning Critical in What Could be Busy Atlantic Hurricane Season
18
Pandemic Business Liability Protection to be Key Focus of Florida CFO in 2021 Session
Departments 6 People
2 | INSURANCE JOURNAL | FLORIDA JUNE 1, 2020
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News & Markets Florida Agency Reps Can Continue to Work Remotely During Health Emergency
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ustomer service representatives holding a particular Florida insurance license will be able to continue conducting business remotely until at least July 7. A directive issued by Florida CFO Jimmy Patronis that allows remote work by Florida agency customer service representatives who would otherwise be restricted from conducting business outside of a licensed agency will remain in effect so long as a public health emergency is declared in the state by Governor Ron DeSantis. The original directive, first issued on March 16, gave insurance employees holding a Resident Customer Service Representatives (CRs) 4-40 license the ability to work from home in response to the coronavirus pandemic and was to expire May 8. Florida law pertaining to 4-40 CRs licenses was enacted
in 1990 and allows salaried employees of insurance agents or agencies in Florida to transact insurance business only under the supervision of a licensed and appointed general lines agent. Employees holding the 4-40 license are unable to transact insurance outside of the office of the agency they are employed by, cannot be employed by more than one general lines agent or agency at any given time and must be housed in the office of the agent or agency. The CRs can also only solicit business within the agency office or by phone from the office, according to the Department of Financial Services, which is charged with regulating the sale of travel insurance and other insurance products within the state of Florida. Patronis’ original order stated that DFS would not enforce
4 | INSURANCE JOURNAL | FLORIDA JUNE 1, 2020
provisions of the law until May 8, 2020, unless the order was extended, in order to “afford flexibility to licensees who are quarantined or whose offices are subject to closure due to the COVID-19.” The original directive specifically referenced the two Florida Statutes that say insurance customer representatives “shall not engage in transacting insurance outside of the office of his or her agent or agency” and says insurance customer representatives must be housed in the “actual confines of the office of the agent or agency whom he or she represents,” among other stipulations. By recommendation from the Center for Disease Control (CDC), companies nationwide began allowing employees to work remotely in an effort to slow the spread of the strain of coronavirus known as COVID-19 back in March.
However, Florida insurance employees carrying 4-40 licenses could have faced disciplinary action for doing so prior to the waiver in the directive. Patronis said in the May 8 extension that in order to promote “core safety principals” in DeSantis’ recovery path to reopening Florida, and to “afford flexibility to licensees,” the directive will remain in effect during the effective period of the governor’s public health emergency executive order, currently set to expire July 7, and, “any extensions thereof.” Under Florida Gov. Ron DeSantis’ emergency order, government agency heads such as Patronis have certain authority to waive statutory and administrative provisions “to the extent strict compliance with such provisions would prevent, hinder, or delay necessary action in coping with the ongoing emergency.”
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Risk manager Mark Resler has been appointed to the
Florida Self Insured Guaranty Association (FSIGA) by Florida
Chief Financial Officer (CFO) Jimmy Patronis, according to a statement from the Florida Department of Financial Services. Resler currently serves as the risk manager for Anderson Columbia County in Lake City, Fla. and as a board member of the Florida Association of Self-Insureds. He previously worked as the manager of self-insured claims for FCCI Insurance Group, claims manager for Integrated HealthCARE Delivery Services Inc., and claims supervisor for Aetna. FSIGA is a private, nonprofit corporation established by Florida Statute and is responsible for guaranteeing that injured workers of insolvent self-insurers continue to receive their benefits. All self-insurers other than governmental entities and public utilities are required to be members of the association.
Brian O'Neill
TigerRisk Partners LLC, a risk/capital management and strategic advisory firm, has named Brian O’Neill partner and client executive, Florida Business. In his new role, O’Neill will foster the development of property catastrophe products in Florida and other coastal states. O’Neill will be based in Tampa. He was most recently
managing director and head of Guy Carpenter’s Tampa office. He started his career at Guy Carpenter in reinsurance claims and transitioned to P&C broking. O’Neill also spent several years at JLT Re where he was the head of the Natural Catastrophe Practice. TigerRisk Partners LLC is a risk, capital and strategic advisor to the insurance and reinsurance industries.
Kelly Nash
BKS-Partners, an insurance brokerage and risk management firm headquartered in Tampa, Fla., has appointed Kelly Nash to Regional president. As BKS-Partners Regional president, Nash will take responsibility over the BKSPartners business, including Commercial Risk Management, Employee Benefits, and Private Risk Management. Nash has served as the Private Risk Management (PRM) managing director since joining BKS-Partners in 2017. In this role, she was responsible for the overall growth and organization structure of the PRM group, which services high-networth and family office clients. She has led the expansion of the PRM team into new markets across the Southeast as well as organic growth. Prior to joining BKS-Partners in 2017, Nash served as vice president and West Zone sales leader at Marsh Private Client Services. She has nearly 20 years of experience in the highnet-worth insurance industry
6 | INSURANCE JOURNAL | FLORIDA JUNE 1, 2020
and family offices.
Steve Bitar
Gemini Financial Holdings Corporation (GFHC), the parent company of Olympus Insurance Company, has hired Steve Bitar, former chief of Underwriting and Agency Services for Citizens Property Insurance Corporation, as CEO replacing Interim CEO James McDermott. Bitar has more than 20 years of Florida-specific insurance experience, with a diverse background including underwriting in both personal and commercial lines, product development, agency services, and business analysis and implementation. He has held several executive and senior leadership positions including both vice president and senior director of Consumer and Agent Services as well as director of Consumer Services. During his time with Citizens, Bitar implemented several technology initiatives. In addition, Bitar directed Citizens’ Catastrophe Response Centers. GFHC Board Chairman Dennis McGill said the board had specific requirements relating to Florida property insurance experience, underwriting and product development leadership, effective catastrophe response management, and a record of customer service, when conducting its search to fill the position. Headquartered in Palm Beach Gardens, Fla., and founded in 2007, Olympus Insurance Company specializes
in Florida property insurance. Olympus insures residential and investment property including homes, condos, rental properties, and valuable personal property. The company also offers flood insurance through both the NFIP and private market partnerships.
Michael Garamoni
Orchid Underwriters Agency LLC (Orchid Insurance), an independent managing general underwriter with a focus on catastrophe-exposed properties, has appointed Michael Garamoni as chief financial officer. Garamoni has spent the past 13 years in finance, reporting and planning, which included roles as vice president of Global Finance for Ryan Specialty Group LLC. and at Pricewaterhouse Coopers LLP. According to Brad Emmons, president and chief executive officer at Orchid Underwriters Agency, Garamoni will help with the company's efforts in pursuing growth opportunities and expanding its market leadership position. Garamoni and his family relocated from Chicago to Florida, where he will serve in Orchid’s Vero Beach headquarters. Founded in 1998 and based in Vero Beach, Fla., Orchid Insurance specializes in providing specialty insurance products for homeowners and businesses throughout the United States, the Bahamas and the Caribbean. INSURANCEJOURNAL.COM
News & Markets Florida Sets Standard for Flood Insurance Innovation as Risk Rises
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loods are becoming increasingly common and costly natural disasters in the United States. According to data By James R. Watje from the Federal Emergency Management Agency (FEMA), between 1996 and 2019, 99% of counties throughout the country were impacted by damaging flood events. Florida is among the states most significantly impacted by flooding. In fact, statista.com shows that of the top 10 most expensive flood disasters that occurred between 1978 and 2019, two (Hurricanes Matthew and Irma) had a direct impact on Florida. Additionally, according to a 2018 report from the Union of Concerned Scientists, Florida tops the list of states with the most homes at risk for chronic flooding over the next 28 years. With two-thirds of Florida’s population living near the coastline and 27% of homes at high risk, per a McKinsey 2020 case study on Florida’s climate risk to mortgages and financial markets, proper flood coverage is crucial for the economic prosperity of the state and the safety of its citizens. In response to these vulnerabilities, Florida lawmakers and flood insurance industry leaders have worked to expand access to flood insurance coverage. Today, thanks to a combination of pioneering legislation and advanced technology that paved the way for new private flood offerings, Florida residents have access to individualized policies based on their specific property’s risk. These innovations have now been a catalyst for the expansion of the flood insurance marketplace across the country.
The Growth of Florida’s Flood Insurance Marketplace
The peril of flood was once considered uninsurable by many in the industry. As outlined in the National Research Council’s 2015 report on the affordability of The National Flood Insurance Program 8 | INSURANCE JOURNAL | FLORIDA JUNE 1, 2020
(NFIP) premiums, following the damage caused by the 1927 Mississippi River floods, insurers were unwilling to take on the risk for properties in flood-prone areas. This lack of availability led Congress to enact the NFIP more than 50 years ago, a federally backed program that allows homeowners, business owners, and renters in participating communities to purchase flood insurance. Florida is now the largest NFIP state, holding more than onethird of all policies and nearly $1 billion in written premiums. NFIP continues to be an essential part of Florida’s larger flood insurance ecosystem. However, when the passage of the BiggertWaters Reform Act (BW) unintentionally led to spikes in flood insurance premiums for Floridians covered by the NFIP, the stage was set for the introduction of new private flood offerings. Florida’s private flood insurance market truly began to open up in 2014 when Florida State Senator Jeff Brandes sponsored Florida Senate Bill 542, calling for rate and regulation flexibility in the flood insurance market until 2025, which was signed into law on June 13, 2014. Eased regulations, new mapping technologies,
and reinsurance support gave insurance companies and underwriters the confidence they needed to introduce a flurry of new private flood insurance products into Florida’s marketplace. Today, the Florida Office of Insurance Regulation has approved more than 30 companies to provide private flood coverage. These new private options range from standalone policies to endorsements that are added to homeowners policies. These private plans offer higher limits, allowing homeowners to cover the full replacement cost of their home and its contents, and provide new and flexible additional coverages as they continue to measure risk. And, all pricing is developed differently than the NFIP.
Unlocking Data Leads to Big Innovations
Under the NFIP, a structure’s flood risk is determined by which flood zone it is located in on the FEMA flood map. Premium rates are determined by a property’s flood zone designation and are consistent across the entire country. Additionally, NFIP premiums may consider other non-risk factors such as property INSURANCEJOURNAL.COM
ownership and the original date of construction. In contrast, most private insurers determine flood risk property-by-property with the aid of computer modeling, combining flood risk factors, satellite elevation data, historical flood events, as well as storm surge and predictive sea level rise to assign a personalized premium. This provides consumers with a more comprehensive and current view of their flood risk and allows them to customize coverage as opposed to a one-size-fits-all approach. Programs like Wright’s Residential Private Flood Insurance are highly individualized and can also offer Floridians optional resiliency coverage, which allows for rebuilding with water-resistive materials after a flood has occurred. Private insurance programs can also protect multiple structures on a property, such as a shed, pool, or guesthouse, all under one policy.
the number of insured structures, which protects property owners and builds community resiliency for future flooding events.
benefited from embracing both NFIP and private flood plans and giving them space for growth. As more states adopt a flood ‘friendly’ regulatory environment, consumers will see the expansion of flood products, carriers and programs, and ultimately more choices. This growth in options creates the potential to expand
James R. Watje is senior vice president, Wright National Flood Insurance Service, and a 35-year veteran of the insurance industry.
National Expansion of Private Flood Offerings
The success of private flood programs in Florida and their use of advanced technology, risk selection, and model-based rating methods is being replicated in other states vulnerable to flooding. State legislators and regulators are looking at Florida’s growing private flood marketplace in their own efforts to increase the number of properties protected by flood insurance. The best examples are New Jersey and Virginia, each of which have legislation to provide differing levels of rate and regulation flexibility for private flood carriers. This includes recognition and acceptance of pricing structures that utilize flood models to develop projected loss costs, risk assessment and pricing adequacy. Wright National Flood Insurance Services has recently launched a new residential private flood insurance program in New Jersey and plans to launch a similar program in Virginia in the coming months. Regardless of zip code, every property has the potential to be flooded. It is just a question of what that risk looks like. Florida’s insurance marketplace has INSURANCEJOURNAL.COM
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News & Markets
Market Study to Look at Citizens Property Insurance Exposures By Amy O’Connor
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itizens Property Insurance Corp., Florida’s insurer of last resort, has moved forward with an independent study that will evaluate the insurer’s potential exposures from the state’s troubled property insurance market. The Citizens’ Board of Governors voted at its March meeting to approve a proposal by Florida State University for an Exposure Reduction Study at a cost of $265,266 over an 8-month period that began in April. A final report of the study is to be completed by December 2020. According to Citizens’ executive summary of the study, FSU’s proposed analysis will: • Identify opportunities for Citizens to further reduce its exposure while continuing to fulfill its mission as a residual market insurer. • Identify inhibitors to Citizens’ further depopulation and identify strategies to expand Citizens’ depopulation. • Identify mechanisms to eliminate or reduce the re-population of risks by 10 | INSURANCE JOURNAL | FLORIDA JUNE 1, 2020
Citizens tracking the risks specifically depopulated. Citizens President, CEO and Executive Director Barry Gilway told the board the study was more important than ever as many Florida domestic insurers face financial issues that are leading to a hardening of the state’s property market and making it difficult for Floridians to obtain affordable property insurance. “The study … will go well beyond looking at Citizens just as a standalone entity and determine what changes could occur within Citizens and what issues there are within Citizens,” Gilway said. “It would also extend to the overall marketplace and determine if there are changes within the overall Florida market that could improve the competitive nature of the market.” Gilway said Citizens has worked with FSU on the details of the study since it first discussed the idea at the December 2019 Board of Governors meeting. Gilway said then that Citizens would seek input from independent evaluators to determine if there are exposure reduction or depopu-
lation opportunities that can be identified for Citizens to further reduce its overall exposure and financial impact on the state after a request from Florida State Senator Jeff Brandes. Gilway told the board that the study would look at how growing losses in the state’s domestic insurance market may impact Citizens’ policy count going forward. “The proposed study is broad enough in scope to look at the overall Florida marketplace and understand what implications exist for Citizens given any changes in the nature of the profitability of the Florida domestic companies,” he said in December. FSU has conducted previous studies of Citizens, specifically between 2011 to 2015. Those studies, conducted with the James Madison Institute, the Insurance Information Institute and the National Association of Insurance Commissioners, focused on ways to reduce Citizens exposure from its peak in 2011 of 1.5 million policies – 23% of the Florida market – with exposure that topped $512 billion. In the INSURANCEJOURNAL.COM
event of a 1-in-100-year storm, Floridians were on the hook for $11.6 billion in assessments. Since then, Citizens has reduced its policyholder count down to approximately 443,000 policies with about $110 billion in exposure. However, the state’s insurance market has significantly tightened in the last several years thanks to mounting losses for domestic insurers and that could lead to a re-population for the insurer. Concern over the stability of the Florida market worsened at the beginning of this year when Demotech, a ratings agency that evaluates more than 40 Florida domestic carriers, threatened downgrades to as many as 18 companies. Demotech eventually affirmed most of the Florida companies but not before several actions were taken, including one company run-off and several insurer consolidations/mergers. Gilway said if Demotech had downgraded 12 to 18 companies, as it initially
warned, it would have been “a major market disaster for the industry.” Even though companies avoided downgrades, Gilway told the board that Florida domestic insurers ended 2019 with a net underwriting loss of $684 million and negative net income of $340 million, which is more than double the net income loss in the prior two years. As a result, 80% of company rate filings between June and December of last year requested increases, with 55% of those being double digit increase requests. Gilway said in addition, insurers are looking to implement more restrictive form filings and tighter underwriting criteria. Florida has a “very difficult and changing market from a property standpoint,” Gilway said, and he expects Citizens will be increasing exposure “fairly significantly.” “It’s more important than ever that we understand the drivers behind that increase,” he said.
Once the exposure reduction study results come back, Gilway said Citizens can determine what recommendations to make to the Florida Legislature for the 2021 session “to improve the overall competitiveness of the Florida market.” The majority of the Citizens Board of Governors voted in favor of moving ahead with the study, though there was one dissent from Governor Carlos Lopez-Cantera who disagreed it was necessary to perform the study at this time, saying he thought they should wait and see the impact the coronavirus outbreak has on the various markets. “You have a legislative session that is over a year away, you have a market that could shift and change … before then,” he said. “I think this is premature and this is money that could be spent on something else.”
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JUNE 1, 2020 INSURANCE JOURNAL | FLORIDA | 11
News & Markets
How Florida’s Strained Insurance Market is Facing COVID-19, Hurricane Season By Amy O’Connor
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rom the threat of insurer ratings downgrades to mounting carrier losses because of excessive litigation to increasing insurance rates, Florida’s insurance market got off to a rocky start in 2020. Then came the COVID-19 global pandemic, causing further stress to the market and economic insecurity across all industries. In a recent Insurance Journal webinar, “The Florida Market in the Face of COVID, Hurricane Season,” panelists Barry Gilway, president, CEO and executive director of Citizens Property Insurance Corp., and Jeff Grady, president of the Florida Association 12 | INSURANCE JOURNAL | FLORIDA JUNE 1, 2020
of Insurance Agents (FAIA), discussed the state’s insurance market challenges, now exacerbated by the coronavirus pandemic, and the uncertainties of the upcoming hurricane season. Gilway characterized Florida's market issues as “not a surprising shift” given insurers went from $797 million in profits in 2014 to a net income loss of $340 million in 2019. That shift was thanks in part to the end of the state’s 11-year hurricane drought in 2016 and skyrocketing litigation from assignment of benefits abuse and first party lawsuits. “The bottom line is this [market] has turned from incredible profitability, which by the way coincides virtually 100% with
the increase in litigation in 2013 to 2019 from 27,000 ligation cases up to 89,000 litigated cases,” Gilway said. Grady said the rampant litigation has caused a “manufactured crisis.” An excess of first party lawsuits, typically from roofing or water damage claims, have hit the books of Florida domestic carriers hard and they are now filing substantial rate increases or pulling out of certain areas of Florida where the litigation is out of control. The abuse originated in the Tri-County region of Miami-Dade, Broward and Palm Beach and has since spilled over into what the industry now refers to as the SOLO counties – Seminole, Orange, Lake and Osceola. “We used to say Tri County and [SOLO] means sort of the same thing – capacity shrinking, a greater reliance on the residual market – and it’s going to be like that for a while,” Grady said. The pullback in capacity has hit agents too as they lose business, or, in some cases, have their contracts altogether canceled by carriers. Insurers “simply can’t” write business in some of these areas, Grady said. Reforms passed by the Florida Legislature last year to stem AOB abuse have helped, Gilway said, but AOB lawsuits accounted for just about 30% to 40% of the first party litigation against insurers. There is plenty of first party litigation still happening. “We’ve got to have legislative reform relative to first party claims,” he said. Gilway anticipates that the policy count of Citizens, the state-run insurer of last resort, will grow because of shrinking insurer capacity and ever-increasing rate increases being approved by the Florida Office of Insurance Regulation (OIR). Three companies this year – Capitol Preferred Insurance Co., Velocity Underwriters and Edison Insurance Co. – were approved for significant hikes rangINSURANCEJOURNAL.COM
ing from more than 20% to nearly 40% after rate hearings, which are required by OIR for any filings over 15%. Multiple other insurers have filed for double-digit rate increases below 15%. Gilway said state regulators have been supportive of companies’ needed rates, which he noted are “bad for customers, good for companies, bad for Citizens’ because we have a 10% rate cap and we have this widening gap in terms of our competitive nature.” Further underscoring the stress on the market was OIR’s approval last month for Capitol Preferred to cancel more than 23,000 policies two weeks before the start of hurricane season. The regulator deemed it necessary because of the company’s hazardous financial condition. The insurer was approved for a 33.5% rate increase on the shuttered policies. “Really, really tough decision on the part of OIR but the right decision to make in my opinion under these circumstances,” Gilway said. Grady said agents in the state are concerned for their customers who are being displaced in the midst of a pandemic, “which makes it even tougher.” Given Capitol Preferred’s circumstances, however, it was the better of bad choices. “I agree, the OIR was in a very difficult position,” he said. “It’s not lost on the regulator that dropping 24,000 policies off on the curb in the middle of Florida’s wind season, in the midst of a pandemic, probably not the best timing with 45 days to replace the cover.” But, he said, “That just gives you a description of how hard that decision must have been. It was to save the other 75,000 [plus] policies that still have capital behind them and reinsurance in place.”
Reinsurance Challenges
What reinsurance renewals will look like on June 1 is further fueling concerns for the state’s insurance market. Speculation of significant rate increases was brewing long before the June 1 renewal date and the onset of the pandemic. AM Best estimated earlier this year that increases could range from at least 15% to 20%, based on market surveillance. The INSURANCEJOURNAL.COM
ratings agency said Florida companies that depend highly on reinsurance may be most impacted. Florida’s litigation problem has scared off some reinsurers, who are also still dealing with losses from 2017’s Hurricane Irma. Gilway said there are companies that have seen more than 200% loss development from the storm. “So how does a reinsurer price in that scenario?” While reinsurance rates were still unknown as of the webinar discussion and press time, Gilway noted there have been estimates that increases could be 20% to 30% with some exceptions running at 50% to 100%. “The question in everyone’s mind is, how do you pay for this? How do you pay for it in the short term?” he said. A hardening reinsurance market will likely lead to further rate increases for insureds and the potential for more carrier consolidation, Grady said. “It appears as if there’s going to be pretty large rate increases due to reinsurance on top of the rate need that was there for litigation … on top of a pandemic where some people are not as economically capable as they once were,” Grady said.
“Florida agents, and even consumers, are fairly battle tested on the hurricane front.” And Now... COVID
There is no question the pandemic is already causing disruption in the Florida market, Gilway and Grady said. “We have to remember it’s a meltdown of the entire financial system … and the entire financial marketplace, but it’s impacting here tremendously,” Gilway said. “It starts with the reinsurers – they are reeling from COVID-19.” However, as the pandemic drags on, Grady said agents are not reporting a cancellation of policies, at least not yet. “That’s probably in some cases due to the fact that someone’s given them a grace period or those that needed it have been extended. But even those that aren’t, they’re not seeing this rush of cancella-
tions,” Grady said. He said he is proud of the accommodations the Florida industry has made for policyholders, such as payment and claims flexibility, without a mandate by state regulators to do so. But it remains to be seen what things will look like in a few months. Agencies are still not fully operational but are working remotely; 62% of FAIA members indicated in a survey they were unsure if they would reopen their physical offices in June. “They’re in a kind of changed state dealing with the virus while also conducting business, and in some cases the business is a little challenging right now but they’re getting it done,” he said. “I actually believe that the virus is forcing people into working situations that they weren’t accustomed to [and] has been pretty good for some agencies who have learned how to do it… Now they’re doing it and they found out that they can.” Many agents were able to get funds from the federal Paycheck Protection Program in anticipation of the downturn everyone believes is coming, and “they’re pretty well prepared to deal with it,” Grady said.
Coming Up... Hurricane Season
Entering hurricane season during a pandemic is a situation Florida’s insurance agents may not have anticipated, but transitioning to fulltime remote work ahead of the season has been a prudent move, Grady said, as the industry is ready to respond if a storm hits. Agents also already have experience with handling catastrophes, even if this year there are more complicated circumstances. “Florida agents, and even consumers, are fairly battle tested on the hurricane front. We are ingrained with a lot of hurricane preparedness,” Grady said. “Now you add on this layer of COVID-19 and the social distancing and all the other restrictions that are there... But, the industry during this pandemic has started adapting to some new technology and new ways of doing business that fit right into the hurri-
continued on page 14
JUNE 1, 2020 INSURANCE JOURNAL | FLORIDA | 13
News & Markets continued from page 13
cane season.” As an insurer, Citizens had already ramped up its claim’s response efforts with aerial imagery, virtual inspection programs and online claims servicing before COVID. This year it is has added drive up claims options to allow for social distancing and immediate customer service. Gilway does expect the litigation environment could be “more volatile” if there is a storm because of the pandemic, but Citizens is implementing protections to stem any abuse. “An adjuster will not step on premises without responding to a whole stack of qualifications and acceptances relative to the risk associated with that,” he said. “I think all we can do at this point is be as innovative as we possibly can, understand appropriate concerns that our customer has and then attempt to respond to those.” He added that technology, innovation and Citizens’ ability to adapt to the situation “makes litigation far less likely.” “I’m sure every carrier has taken the same basic approach in making sure they cover themselves as much as they possibly can. Public adjusters will attempt to go after these claims, litigators will attempt to litigate, and only time will tell to see how successful we are and how effective we combat it,” he said. Ultimately, Gilway is holding out hope there isn’t a major storm to hit the state this year, particularly South Florida, “because that is the event that could fundamentally change the overall marketplace.”
Moving Forward…
Gilway and Grady noted it isn’t all doom and gloom for the Florida market. Demotech’s eventual affirmation of the more than 40 Florida carriers it rates potentially saved about 1 million policyholders from having to find new coverage, and the insurer consolidations that occurred have made the market stronger. Additionally, litigation numbers are down for the vast number of carriers thanks to the tail of Irma, Gilway said. However, he added there are still storm-related suits coming in from pre14 | INSURANCE JOURNAL | FLORIDA JUNE 1, 2020
dominantly nine Florida litigation firms. Grady said Citizens is also a much better “landing spot” for insureds seeking a new insurer than it used to be, though it shouldn’t be the preferred option. “It’s still a residual market and a market that is not meant to be preferable to the voluntary market,” he said. But both Grady and Gilway warned that Citizens’ secure place in the market could easily change if companies continue to flee parts of the state because of litigation and the financial fallout from the pandemic becomes too painful for the industry.
“If there’s anything good that comes out of these harder times ... it’s maybe it gets the lawmakers’ attention and they finally do something to pass reform” “The effect on the markets, it’s going to be significant,” Gilway said. “It starts with reinsurance, the reinsurance profitability, it moves into the industry capacity and the capacity that the private carriers have available to them,” he said. Grady and Gilway mentioned Demotech’s plan to review carriers' final CAT programs, first quarter results and the financial projections for the balance of 2020. The ratings firm said in May it will also analyze the impact of COVID and the actual cost of reinsurance on carriers’ operations. Demotech noted then that stakeholders should expect further changes to insurer business models and operating plans similar to what has already occurred with other Florida carriers. Grady is concerned many of the companies that Demotech did not downgrade earlier this year have not improved financially and COVID expenses, unaffordable reinsurance rate increases plus more litigation won't help the situation. “You can’t tell me a lot of the companies that were on [Demotech’s] list before have significantly improved in this last quarter,” he said. “If what played out with the threat of ratings downgrade plays out
again, I would not be surprised to see a few more companies cobble up together and hopefully not many failures.” Gilway said legislative reform for first party lawsuits and Florida's one-way attorney fee statute is critical to turning the market around. The changes wouldn’t have to go as far as the AOB reforms did, he said, but must ensure plaintiffs’ attorneys “have some skin in the game relative to litigation.” He said without long-term changes Citizens’ policyholder count will grow, “the question is how much we’re going to grow.” “If it’s not resolved, then the market is unsustainable, we’re going to grow,” he said. “It’s not going to change until we get some fundamental changes in the marketplace.” Citizens’ is more prepared than it ever has been to handle policy growth both financially and operationally, but a healthy private market is essential. “Our objective if we grow is to take [insureds] in as effectively as we possibly can, service the heck out of them and then work towards improving the overall flavor of the marketplace, the competitive nature of the marketplace,” Gilway said. “As soon as carriers start making money, as soon as they return to profitability, trust me, the population will soar because they can get thousands of our policies with no acquisition cost.” Grady is hopeful lawmakers will take up these “important measures” next session so carriers and the market stay sustainable. “If there’s anything good that comes out of these harder times for property carriers it’s maybe it gets the lawmakers’ attention and they finally do something to pass reforms that means that we can keep these guys stable and steady here in Florida and not rely on our state property market as much,” he said.
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News & Markets Florida Regulator to Monitor Capitol Preferred Operations as Insurer Sheds Policies By Amy O’Connor
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apitol Preferred Insurance Co., one of the top writers of homeowners insurance in Florida, received approval from the state’s insurance regulator to shed 23,800 policies. The move came just weeks before the start of hurricane season. In a May 12 consent order, the Florida Office of Insurance Regulation found that the early cancellation of the Capitol Preferred policies was necessary based on its magnitude of losses in 2017, 2018 and 2019, the increased cost of reinsurance and “to protect the best interests of the public and policyholders,” according to an OIR spokesperson. The regulator noted the move is “an extraordinary statutory remedy reserved to address insurers which are or may be in hazardous financial condition without the cancellation of policies.” OIR has ordered additional corrective measures for Capitol Preferred, which writes business in South Carolina and Louisiana in addition to Florida, and said it will be closely monitoring the financial condition of the company until further notice. The Tallahassee-based insurer also owns Southern Fidelity Property & Casualty (SFPCI) and had a total of 117,266 policies in force as of Dec. 31, 2019, according to OIR data, making it one of the top 10 homeowners insurance companies in the state at the time. OIR reported its policy count was at 108,870 as of May 3. According to the OIR consent order, Capitol Preferred sought to cancel 27,500 policies with 45 days’ notice, as permitted by Florida law in cases for insurers that are in a hazardous financial condition. The insurer provided financial projections in its request, “which demonstrated that absent such action, it may not be able to maintain surplus to policyholders sufficient to meet [Florida law],” the order says. 16 | INSURANCE JOURNAL | FLORIDA JUNE 1, 2020
OIR stated the policies that Capitol Preferred requested to cancel consisted of a block of 23,800 homeowners policies it acquired from its affiliate SFPCI in February 2019, and based on the documentation and financial projections OIR reviewed, “the SFPCI block materially contributed to both company’s past and projected losses and to its projected reinsurance costs.” After analyzing the request to cancel the requested 27,500 in-force policies, OIR determined that canceling 23,800 policies from the SFPCI block “produced similar financial results” for the company and resulted in almost 4,000 fewer policyholder cancellations. The insurer is required to give policyholders 45 days’ notice of cancellation and refund any unearned premiums no later than June 15. The company’s financial issues were made public late last year when it sought a 47% rate increase from regulators on one of its 14 books of business. It later amended the requested increase to 36.5%. The filing was subject to a public rate hearing in February of this year where CEO Jimmy Graganella told regulators that three factors had brought the company to the point of needing the substantial rate increase — reinsurance costs, AOB abuse and, more importantly, first party lawsuits. According to Graganella, 36% of the company’s claims at that time were represented by an attorney, up from 4%. “That’s a massive number,” he said at the hearing. In the May 12 consent order, OIR granted Capitol Preferred a statewide average rate increase of 33.5% but even with the substantial rate increase, the SFPCI block “will continue to generate unsustainable losses,” without cancellation, OIR said.
respectively, and said continued losses of that magnitude were not sustainable. As a result of those operational losses and the threat of continued unaddressed losses, OIR further ordered the insurer to submit an updated business plan to the regulator by July 1 that demonstrates the company’s ability to “generate successful operating results by the implementation of underwriting changes, rate adjustments, operational savings, capital management, and other significant modifications to its current business model.” The plan must run from July 1, 2020, through Dec. 31, 2023, and include all assumptions used in its analysis including pro forma projections, cash flow analysis and reinsurance necessary to provide coverage for at least a 130-year event. Additionally, the plan must reflect a number of stipulations including: changes to be made in underwriting procedures that would limit capacity for new business and properly price and underwrite all business written or renewed; pending litigation naming Capitol Preferred as a party; capital funding and access to capital for
Required Company Measures for Continued Operations
OIR stated that Capitol Preferred reported net losses of $5.1 million, $17.8 million and $25.7 million in its filed financial statements for the years 2017, 2018 and 2019, INSURANCEJOURNAL.COM
the immediate 12 months, among others. The insurer must also file a five-year strategic plan with OIR by Dec. 31, 2020, that includes any plans for new products, plans to raise capital, new affiliates or mergers and acquisition, etc. OIR states that it reserves the right to “retain an individual entity at the expense of Capitol Preferred to review all of the company’s direct and indirect expenses of its affiliates to determine if those expenses are fair and reasonable.” Capitol Preferred must limit its new and renewal business going forward, and any changes or increases to this business limitation must be filed and approved by the regulator.
Policyholder Impact
The policy cancellations, which come less than two months after the insurer had its ‘A’ rating affirmed by financial analysis firm Demotech, came as a surprise to Florida Insurance Consumer Advocate Tasha Carter, who said she was not made aware that nearly 24,000 policyholders would lose coverage so close to the start of hurricane season. “Of course, my immediate concern was for those policyholders having to obtain new coverage. But more importantly than
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that, it was the timing of this particular action, because these consumers are not only going to have to search for new coverage, they’re going to have to search for new coverage ... approximately two weeks [before] the start of hurricane season,” Carter said in an interview with Insurance Journal immediately after the order was issued. “That definitely puts them in a very precarious situation where they’re going to have to really act as expeditiously as possible to obtain new coverage so that they’re adequately protected.” Carter noted the 45-day statutory notification gives policyholders adequate time to search and obtain new coverage, but in this case waiting 45 days brings policyholders into July. Should a named storm occur, they will be unable to obtain coverage as insurers stop binding policies in those circumstances. The Insurance Consumer Advocate’s office planned to work with policyholders that need help obtaining coverage and Carter urged insurance agents to proactively contact their policyholders to assist them with finding a new carrier. “They have to be able to get coverage very, very quickly. They don’t have the option to languish and take their time,”
she said. “While I’m encouraging them to get coverage as soon as possible, they still need to make sure that they are conducting thorough research and making informed decisions as well.” Carter added that OIR has determined the documentation it reviewed and steps it has taken to cancel these policies will help improve the financial stability of Capitol Preferred for the more than 84,000 policyholders still with the insurer. She said she is “very much interested in continuing to work very closely with OIR in monitoring and tracking Capitol Preferred’s financial stability and their actions to ensure that if there are any other challenges that may arise, that we can quickly identify them so that they can be addressed.” OIR said in a statement to Insurance Journal that several steps were taken to notify policyholders and agents of the cancellation of policies, including letters and emails sent out immediately following the decision, so that new coverage could be obtained. In addition, OIR notified Citizens Property Insurance Corporation of the cancellation of these policies, and Citizens verified they have sufficient customer service and underwriting capacity to handle applications for policyholders who are unable to find coverage in the voluntary market. “Citizens has committed to being flexible and modifying processes as necessary to provide affected policyholders with access to coverage. Applicants will participate in the Clearinghouse at Citizens to make certain there is no coverage in the voluntary market,” OIR said. OIR said in a statement its priority is to ensure consumers have access to coverage, and “will make every effort to help consumers find coverage.” Consumers who receive a cancellation notice are encouraged to contact their agent to obtain replacement coverage. Consumers who are unsure if they are impacted are also encouraged to contact their agent. Capitol Preferred has established a dedicated consumer line for policyholders affected by the cancellations at 1-833-319-0615. JUNE 1, 2020 INSURANCE JOURNAL | FLORIDA | 17
News & Markets Pandemic Disaster Planning Critical in What Could be Busy Atlantic Hurricane Season By Freida Frisaro
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ith forecasters predicting another intense Atlantic hurricane season with as many as 13 to 19 named storms, disaster preparedness experts say it’s critically important for people in evacuation zones to plan to stay with friends or family, rather than end up in shelters during the coronavirus pandemic. “Shelters are meant to keep you safe, not make you comfortable,’’ said Carlos Castillo, acting deputy administrator for resilience at FEMA. “Social distancing and other CDC guidance to keep you safe from COVID-19 may impact the disaster preparedness plan you had in place, including what is in your go-kit, evacuation routes, shelters, and more," Castillo said. “With tornado season at its peak, hurricane season around the corner, and flooding, earthquakes and wildfires a risk year-round, it is time to revise and adjust your emergency plan now.’’
Six to 10 of these storms could develop into hurricanes, with winds of 74 mph or more, and three to six could even become major hurricanes, capable of inflicting devastating damage. “It is not possible to predict how many
will hit land," said Neil Jacobs, acting administrator of the National Oceanic and Atmospheric Administration’s Climate Prediction Center. The agency will update the forecast in August as the Atlantic region heads into its most active months. The region has been a “high activi-
ty era” since 1995, with warmer ocean temperatures and stronger West African monsoons causing above-average activity, NOAA forecaster Gerry Bell said. An average Atlantic season has 12 named storms, but last year was the fourth consecutive season to have more, with 18 named storms, including three intense hurricanes - Dorian, Humberto and Lorenzo. The only other period on record that produced four consecutive above-normal seasons was 19982001. The season officially extends from June through November, but Tropical Storm Arthur jumped the gun last month off the eastern U.S. coastline. “As Americans focus their attention on a safe and healthy reopening of our country, it remains critically important that we also remember to make the necessary preparations for the upcoming hurricane season,’’ said Secretary of Commerce Wilbur Ross. Copyright 2020 Associated Press.
Pandemic Business Liability Protection to be Key Focus of Florida CFO in 2021 Session
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lorida CFO Jimmy Patronis said he will pursue legislation that establishes liability protections for businesses in the next legislative session slated to start in March 2021. The Florida Department of Financial Services said in a statement that Patronis is currently working with stakeholders including businesses, associations and elected leaders, to craft legislation that will “head-off frivolous lawsuits in order to protect Florida’s economy and get Florida back to work.” Specific details of the legislation were not yet available, DFS said, but Patronis said the legislation would take away incentives for lawyers to engage in “predatory ‘sue and settle’ tactics, and shield small businesses from liability for COVID-19 18 | INSURANCE JOURNAL | FLORIDA JUNE 1, 2020
related claims, while still allowing legitimate lawsuits based on ‘reckless disregard for human life’ to move forward.” “We can’t allow our state’s recovery to be inhibited by the constant threat of lawsuits that will put people out of business and inevitably jack up insurance rates for people who are trying to make an honest living,” Patronis said. “I think it’s important that leaders take a stand sooner-than-later to make it clear to Florida businesses that we’ve got their backs.” As a member of Executive Committee of Governor Ron DeSantis’s Re-Open Florida Task Force, DFS said that Patronis saw testimony from business, association and elected leaders that expressed the need for liability protection. Based on the testimony, protections will be essential for
businesses to “comfortably” operate in the midst of the COVID-19 pandemic. The issue was also brought forward by businesses and industry sector representatives across Florida as Patronis has met with them during the pandemic. The DFS statement said left unchecked, COVID-19 lawsuits based on premises liability and other theories have the potential to permanently shutdown cash-strapped businesses. Many businesses may be forced to settle a COVID-19 lawsuit instead of proving through contract tracing that a plaintiff contracted COVID-19 elsewhere. Chief Financial Officer and State Fire Marshal Jimmy Patronis is a statewide elected official and a member of Florida’s Cabinet who oversees the Department of Financial Services. INSURANCEJOURNAL.COM
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