November 16, 2020 • Vol. 98 No. 22
Contents
News & Markets
News & Markets
News & Markets
How Agents Can Help Floridians Navigate Hurricane Season Aftermath
Florida Regulator Calls for Further Workers’ Comp Rate Decrease
Hour of Crisis Nears For Florida's Property Market
10 Beruff Appointed to
11
Keeping Up with Florida’s Growing Private Flood Market
4
Florida’s Citizens Board of Governors; State Rep Diaz Steps Down
10
Tower Hill, Safeco to Offer Policy Multi-Policy Discount in Florida
12
18
Departments 8 People
2 | INSURANCE JOURNAL | FLORIDA NOVEMBER 16, 2020
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“THE DEDUCTIBLE INSTALLMENT PLAN WAS A GODSEND!”
September 10, 2017 was a day that Edie and Marvin Hartley will never forget. Hurricane Irma was rapidly approaching. The normally placid creek behind their home was rising. They took shelter upstairs as the creek water engulfed the first floor of their beloved home. Record-breaking wind driven rain severely damaged their roof, ceilings and their detached garage.
The Deductible Installment Plan is available only from Cypress Property & Casualty Insurance Company • If homeowners use one of our preferred vendors, their repair work can begin immediately while they pay their deductible in three installments. • No payment is due for the first six months. The last two payments are billed on an annual basis thereafter. Payments can be made sooner. • No fees. • No interest. • No credit check. • No increase in premium. • Applies to up to 2% of the hurricane or catastrophic event deductible for both HO3 and HO6 policies. • Available to all HO3 and HO6 insureds at no extra charge! To learn more: Call 1-877-560-5224 or visit www.cypressig.com/DIPFL A patent has been filed. Must use a Cypress approved vendor. Not applicable to HO4 policies. This document is a brief description of the DIP benefit and is not meant to be a contract, please refer to actual endorsement. Please refer to your policy for full terms and conditions.
WORKING TOGETHER. Phone: 877-560-5224 www.cypressig.com
“Cypress was an absolute pleasure to work with! Every Cypress customer service representative was so helpful and courteous. They were beyond generous with their time, explanations and finding us contractors to repair our home. All of the subcontractors were excellent.” – Edie Hartley, homeowner
News & Markets How Agents Can Help Floridians Navigate Hurricane Season Aftermath
T
he 2020 hurricane season has been one for the books. From ferocious storms battering the Gulf Coast to heavy By Jenny Naughton rains inundating the Florida Panhandle, the Atlantic has seen an unprecedented amount of activity this year. The Weather Channel reported that this season, 22 out of the 25 named storms in the Atlantic through October 5 had their earliest formation date on record, based on their letter identifier. Arthur, Bertha and Dolly (storms A, B and D) were the only storms represented in the list of names that did not have a record early formation date. Plus, in September 2020 — typically hurricane season’s busiest month — three storms formed in the Atlantic on a single day (Sept. 18), something that hasn’t
occurred since 1893. Even storms that weren’t as strong as predicted levied significant damage upon making landfall. For example, Hurricane Sally, which was expected to bring record-breaking amounts of rain to Alabama and the Florida Panhandle, sustained up to six feet of storm surge in Pensacola, the third-highest level in recorded history. As we close out the season and look to 2021, there are many lessons to be learned from this year’s hurricane season. Here are key considerations insurance agents and brokers should share with their Florida-based and other hurricane-prone homeowner’s clients as they prepare for future storms.
Navigating Storm Damage in a PostPandemic World
This hurricane season, COVID-19 upped the ante, impacting everything from how homeowners prepared to how
4 | INSURANCE JOURNAL | FLORIDA NOVEMBER 16, 2020
they repaired damage. In some early cases, pandemic-related supply chain disruptions left homeowners scrambling to acquire backup generators or stormproof their property. Even in light of these obstacles, many insurance carriers worked tirelessly to ensure that COVID-19 wouldn’t make hurricane season more challenging for their clients — especially when it came to the claims process. Fortunately, many carriers are now able to be on-the-ground and in-person to help assess damage from the most recent hurricanes. However, earlier in the hurricane season, many communities were still under strict lockdown orders due to COVID-19, and certain carriers, such as Chubb, expanded their digital services to offer remote inspections following hurricanes. These alternate services were particularly helpful for clients who preferred a virtual experience in light of social distancing guidelines.
continued on page 6
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OUR LIGHT, YOUR HOME With a history of more than 12 years serving Florida policyholders as Prepared Insurance Company, we are a trusted carrier committed to the Florida home insurance market. Now, as Prepared has joined Lighthouse Property Insurance Corporation, we have expanded our geographic footprint across the southeast. That’s why we are STRONGER TOGETHER. With a Financial Stability RatingŽ of A, Exceptional, from Demotech, Inc., and long-term reinsurance partners, New Beginnings with Lighthouse means we are prepared now more than ever.
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News & Markets continued from page 4
Leveraging satellite images, drone technology, virtual services and other digital means, these insurers were able to efficiently assess damage without working on-site. In some cases, these virtual inspections also allowed carriers to begin the adjusting process even before on-site access was allowed by local officials — so homeowners could potentially begin the repair process sooner and help prevent additional damage from accumulating. These virtual insurance inspection capabilities are here to stay, and agents and brokers should encourage Florida-based and other hurricane-prone clients to seek out a carrier that has successfully introduced a seamless virtual claims option. Even when social distancing is a measure of the past, working with a carrier that has these digital tools in their arsenal can help reduce adjustment delays and speed up the repair process.
Planning Today to Help Clients Prepare for Tomorrow
The pandemic aside, there are many factors agents and brokers should discuss with their Florida-based homeowner’s clients when it comes to preparing for future storms. As they reflect on this year’s storm season, agents and brokers should help their clients identify any gaps in their home protection strategy. If clients experienced wind or water damage over the past few months, what can they do to prevent additional occurrences? Even if clients were lucky enough to escape this season relatively unscathed, what risk mitigation tactics can they implement to make their homes less vulnerable in the future? For example, many clients might benefit from a gas-powered back-up generator that could power appliances in the event of a prolonged outage. Additionally, to help prevent future damage, agents and brokers should remind clients to implement appropriate storm-proofing best practices, such as: • Installing impact-resistant storm shut-
ters on windows, doors and skylights • Sealing the seams and joints of roof decks with deck tape to prevent water intrusion • Building entry doors made of solid wood or hollow metal that have a minimum of three hinges and a deadbolt that fully secures into the doorjamb • Installing a roof covering that can sustain high winds, as well as building code-approved hurricane straps that connect the roof to the tops of the walls • Using a garage door that is impact-resistant or reinforced to withstand high winds Though some of these might seem like minor adjustments, they can have a significant impact on property protection. Even if not required by building codes, these investments can be well worth
6 | INSURANCE JOURNAL | FLORIDA NOVEMBER 16, 2020
it and cost homeowners far less than repairing storm-related damage.
Looking Ahead to 2021
As clients continue grappling with the pandemic, it is easy for hurricane safety to take a backseat. The reality is that the next storm season isn’t as far away as it may seem. Now is the time for insurance agents and brokers to help their clients learn from the weather events of 2020 and make decisions that will help ensure they are protected from storm damage for years to come. When it comes to hurricanes, it’s never too late to improve one’s risk mitigation strategy, and it’s never too early to start preparing. Jennifer Naughton is executive vice president and risk consulting officer for Chubb Personal Risk Services INSURANCEJOURNAL.COM
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People Florida
Virginia Austin
The Board of Florida Peninsula Insurance Co., a top 10 home-
owners insurance company in Florida, has promoted Virginia Austin to director of Special Investigations. Austin, who began her career with Florida Peninsula as a claims examiner, has managed the company’s Special Investigations Unit (SIU) team for the last seven years. In this new director role, she will represent Florida Peninsula regarding claims suspected of fraud in conjunction with the Department of Financial Services (DFS) and the associated law enforcement agencies in the state. Austin joined Florida Peninsula in 2009, working her way from claims adjuster to examiner to fraud investigator. Under the leadership of the company’s chief legal officer, Stacey Giulianti, she has helped build the current fraud investigation unit. The Florida Peninsula Insurance family of companies, which includes Edison Insurance Co., has also promoted Mariella Gonzalez to director of Agency Support. In addition to her current role as director of Community Involvement, Gonzalez will now oversee all agent support functions and continue to lead her team through various marketing projects, agent engagement opportunities, and communication initiatives. As Florida Peninsula’s
director of Community Involvement, Gonzalez leads the charge on the company’s philanthropic and volunteer efforts and is a driving force behind the “Florida Peninsula Gives Back” team. In 2019, she received the inaugural Humanitarian of the Year award from the Broward County Latin American Association of Insurance Agencies for her work in the community. Gonzalez has worked for more than 15 years as part of the Florida Peninsula team, organizing charitable projects for the company. Florida Peninsula markets through a network of 2,500 independent insurance agents.
product roadmap. Smith spent nearly 20 years as a director of Custom Software Development for Tribridge, and later DXC Technology, after the publicly traded end-to-end IT services company acquired Tribridge. Headquartered in St. Petersburg, Fla., CaseGlide offer a claims litigation software product designed to helps claims professionals and insurance defense lawyers with cases, indemnity and decision making.
The Villages Insurance Partners has added three
Paul Knutson
Centauri Specialty Insurance Holdings and its subsidiaries have appointed Paul Knutson
Russ Smith
CaseGlide LLC, a provider of claims litigation management software for claims organizations, has added Russ Smith as chief technology officer (CTO). A software industry veteran of more than two decades, Smith comes to St. Petersburg, Florida-based CaseGlide from Global Safety Management, where he served as that organization’s senior vice president of Technology. In his role as CTO, Smith will be a technical and operational leader, spearheading CaseGlide’s engineering team. He will play a part in guiding research and development, prioritizing opportunities to respond to customer needs and managing the long-term
8 | INSURANCE JOURNAL | FLORIDA NOVEMBER 16, 2020
Midwest regional personal lines/small commercial segment lead, and origination team leader, respectively. According to Rick Espino, president and CEO of Centauri Insurance, Knutson’s background and experience in the reinsurance markets will generate focused strategies to bolster Centauri’s financial stability and reinforce its reinsurer relationships Centauri Insurance is a property and casualty insurance company based in Sarasota, Fla., which currently operates across nine states with continual plans for expansion.
vice president of Capital & Reinsurance Strategy. As a member of the executive team, Knutson is responsible for the design, negotiation and implementation of tailored internal and external products and services providing Centauri with the underwriting capacity to assume and retain risk in support of the company’s financial and strategic goals. During his 25-plus year career as a reinsurance broker, Knutson has specialized in property reinsurance, creating tailored risk transfer options for companies operating in catastrophe-prone geographies. Working for intermediaries that include Guy Carpenter, Willis Re and BMS Re, Knutson has served in roles that include property specialty regional leader,
former State Farm employees to its personal lines insurance team. Specializing in home, auto and golf car insurance, Chelsea Allen, Julia Skillman and Lacey Maher collectively bring over 10 years’ experience in the insurance industry to the agency. Allen, Skillman and Maher joined The Villages Insurance Partners (TVIP) in July 2020 and have successfully completed TVIP’s training program. Allen began her career in insurance with a State Farm agency in Ocala, Fla., from 2018-2020. Skillman’s insurance background includes three years with a State Farm agency out of Orlando, Fla. Maher worked in State Farm Auto Claims in Tacoma, Wash., from 2014-2017 then moved into sales as a State Farm agent in Lady Lake, Fla., where she remained employed from 2017-2020. INSURANCEJOURNAL.COM
YOUR PEACE OF MIND IS OUR PRIORITY www.stjohnsinsurance.com
St. Johns Insurance customers entrust us to protect what is dearest to them: their homes, their families and their futures. We believe every customer deserves the peace of mind that comes with knowing their largest investment is secured.
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St. Johns Insurance Company offers homeowners insurance in the states of Florida and South Carolina.
News & Markets Beruff Appointed to Florida’s Citizens Board of Governors; State Rep Diaz Steps Down
C
arlos Beruff, a Manatee County businessman, has joined the Board of Governors of Florida’s Citizens Property Insurance Corp., the state-run insurer of last resort announced. Appointed by Senate President Carlos Beruff Bill Galvano, Beruff replaces Blake Capps for a three-year term that ends July 31, 2023. Jose Felix Diaz, a former Florida House of Representative member
who was appointed to Citizens Board of Governors in July 2020 by House Speaker Jose Oliva, resigned from the board in September, shortly after joining in August. Citizens said the timing to serve on the board did not work Jose Felix Diaz out for Diaz “due to other business interests.” A resident of Manatee County since 1980, Beruff is a real estate developer, state-certified building contractor and
the CEO of Medallion Home Gulf Coast LC., a home building company. He started his first business when he was 22 and has since built more than 2,000 homes and developed, owned and managed dozens of other properties. Beruff also has served on numerous public governing boards including the State College of Florida (SCF), the Construction Industry Licensing Board and the Southwest Florida Water Management District. He currently serves as a commissioner on the Sarasota Manatee Airport Authority.
Florida Regulator Calls for Further Workers’ Comp Rate Decrease By: Amy O’Connor
F
lorida’s insurance regulator has called for a further decrease to proposed workers’ compensation insurance rates in response to a filing by the National Council on Compensation Insurance (NCCI). In an order issued Oct. 30, Florida Insurance Commissioner David Altmaier said the August filing for a 5.7% decrease needed to be amended to a larger decrease of 6.6% to be approved. NCCI was to file the amendment by Nov. 4, 2020. Approval of the revised 6.6% rate decrease is contingent on the amended filing being submitted with changes as stipulated within the order. Altmaier’s order disapproved the inclusion of large deductible coverage from two NCCI financial calls, saying that NCCI indicated in its testimony that the use of large deductible coverage data imposes a cost on carriers “but does not have a significant impact on the credibility or predictive value of the filing’s aggregate indication. NCCI agreed that this data should be eliminated from the filing’s aggregate indication.” The order also noted that filing does not include claims from COVID-19, as the
potential impact of the coronavirus on the workers’ compensation system is in the beginning stages. “NCCI is gathering information and conducting research to gauge the pandemic’s impact on claim frequency, severity, and duration, but has not yet assessed its impact on future rate levels,” the order states. If approved by OIR, the revised rate decrease would become effective on Jan. 1, 2021, for new and renewal business. The decrease would be the fifth for Florida since 2016, when two separate Florida Supreme Court decisions led to a significant rate increase and much anticipation that rates would continue rising in the near future. Those decisions — Westphal v. City of St. Petersburg and Castellanos v. Next Door Company — “resulted in changes to the Florida workers' compensation landscape” by undoing a primary cost-reduction component of reforms passed by Florida lawmakers in 2003. The initial response from NCCI and regulators was a steep rate increase of 14.5 percent for 2017. NCCI was ordered by OIR in 2017 to begin assessing the market impact of
10 | INSURANCE JOURNAL | FLORIDA NOVEMBER 16, 2020
Castellanos, which has been considered the main driver of concern and accounted for most of the 2017 rate increase. In that case, the Florida Supreme Court found the state’s mandatory attorney fee schedule unconstitutional as a violation of due process under both the Florida and United States Constitutions. However, other factors now appear to be impacting rates positively. NCCI’s rate explanation for 2021 noted that carrier loss ratio results are improving over time, which is consistent with the “very favorable WC industry results countrywide over this period.” Nationally, the workers compensation system is experiencing unprecedented results, NCCI said. The combination of underwriting discipline, moderating severity, declining frequency, and adequate reserves has resulted in six straight years of combined ratios under 100%. Claims frequency has been on a downward path thanks to technology, safer workplaces, improved risk management, and a long-term shift from manufacturing to service sectors, NCCI said. INSURANCEJOURNAL.COM
News & Markets Tower Hill, Safeco to Offer Policy Multi-Policy Discount in Florida
F
lorida-based Tower Hill Insurance and national carrier Safeco, two non-affiliated carriers, have formed a marketing partnership in the state of Florida to offer a multi-policy discount to customers. Starting in November, policyholders will have access to a multi-policy discount when they add a Tower Hill home to an account with a Safeco auto policy – or add a Safeco auto policy to an account with a Tower Hill home policy. The company said with market disruption commonplace in Florida, “this is an opportunity for both companies to reach more customers through their multi-policy marketing partnership.” The multi-policy discounts are applied to both the auto and home insurance policies. Tower Hill’s President Don Matz, and Debra Pooley, Southeast Region Field executive at Safeco, jointly announced the new partnership to agents, saying the
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Founded in 1972, Tower Hill Insurance offers residential and commercial property insurance in the Southeast. Safeco Insurance sells personal automobile, homeowners and specialty products through a network of more than 10,000 independent insurance agencies throughout the United States. Safeco is a Liberty Mutual Insurance company, based in Boston, Mass.
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marketing partnership is a natural way for each company “to better serve our independent agents and policyholders.” Tower Hill currently insures more than 2 million customers. Both teams worked over the last year to bring the partnership to light, according to the companies. Safeco Insurance currently offers several programs in Florida — including the RightTrack Mobile program, which provides discounts for safe drivers. After a 90-day driving period, eligible customers receive a premium discount, up to 30%, for the life of the policy. The new multi-policy discount is applied in addition to the home and auto discounts that Tower Hill and Safeco customers already receive.
*Beyond Floodssm branded policies underwritten by one or more companies in the National General Insurance Group, Winston-Salem, NC, NatGen Flood Division. Rates vary. Terms, conditions, limits and exclusions apply. Availability may vary by state.
SORAYA REGALADO Flood Bus. Dev. Manager phone: 786.916.1940 Soraya.Regalado@ngic.com
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CHAD LATOUR, ANFI, CFM, CPIA Vice President, Emerging Markets phone: 941.226.4212 Chad.LaTour@ngic.com
NOVEMBER 16, 2020 INSURANCE JOURNAL | FLORIDA | 11
News & Markets
Hour of Crisis Nears
For Florida's Property Market
A
By Amy O’Connor
fter years of warnings that the Florida property insurance market was heading towards an availability crisis, many in the industry say the moment of reckoning has arrived. They blame unchecked claims litigation from non-catastrophe water losses and rising reinsurance rates that have severely strained the financials of Florida insurers. The situation has gone from bad to worse for Florida domestic insurance carriers this year, which together cover most of the state’s homeowners market. Nearly 60 carriers suffered a combined $701 million in losses and $351 million in negative income for all of 2019, according to Guy Carpenter. In just the first half of 2020, the companies lost more than a half billion ($501 million) in underwriting losses and $227 million of negative net income. Third quarter results are expected to show further deterioration. Guy Carpenter’s data cited an average net combined ratio for 2019 of 111 percent that climbed to 129 percent in the second quarter of 2020 for these companies. “If we’re not in a crisis, I don’t know what we’re in,” said Kyle Ulrich, president and CEO of the Florida Association of Insurance Agents. “Those numbers … just simply are not sustainable.” As a result, carriers have been steadily raising rates this year, and this trend isn’t expected to slow down any time soon. Companies are requesting and the Florida regulator is approving substantial rate increases – some more than 30% – along with taking steps to limit their exposures and protect their books of business. The vast majority of Florida insurers have filed multiple rate increases this year for just less than the 15% thresh12 | INSURANCE JOURNAL | FLORIDA NOVEMBER 16, 2020
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old that requires a rate hearing by the Florida Office of Insurance Regulation. Since August, four companies – Capitol Preferred Insurance Co., Southern Fidelity Insurance Co., First Community Insurance Co. and Centauri Specialty Insurance Co. – have participated in rate hearings for rate increase requests ranging from 25% to just less than 40%. John Rollins, former principal and consulting actuary with Milliman and now chief financial officer at Olympus Insurance, told the Colodny Fass/Aon Florida Insurance Summit in September that Florida homeowners insurers filed at least 79 rate increases through the second and third quarter of 2020. The cumulative impact of these filings averages a 9.3% increase equaling $7.4 billion in homeowners premium, not including dwelling fire, Rollins said. The total premium base in Florida is about $11 billion, Rollins noted, “so essentially you’ve had 70 percent of the market go to the well in the last five and a half months and take a rate increase of 9.3%.” “Consumers are feeling this pain and as the renewal cycles roll in over the next 12 months, these 79-plus [insurer] rate filings … are really going to hit,” Rollins said. How did the market get to this point? Over the last several years, insurers have consistently cited evidence of excessive first- and third-party litigation from non-catastrophe water damage losses across the state. While the state also experienced a number of major catastrophes, the industry says the frequency and severity of lawsuits on non-cat losses has been unprecedented. Barry Gilway, president and CEO of Florida’s Citizens Property Insurance Corp., said litigation for the state-run insurer of last resort has increased in some parts of Florida by 500% in the last four years. “Litigation is out of control in the state and until we do something about the overall litigation issues and the firms drumming up litigation, then rates are not going to stabilize,” Gilway said at the Colodny Fass/Aon event. Overall litigation rates for third party assignment of benefits (AOB) lawsuits INSURANCEJOURNAL.COM
have dropped from what they were a few years ago thanks to reforms passed in 2019, but carriers say they are still being hit by a considerable amount of first party litigation and excessive attorney fees. They point the finger at the state’s one-way attorney fee statute and the contingency fee multiplier for incentivizing inflated lawsuits against insurers. “We have seen a continued increase in litigation whereas specific AOB claims have decreased slightly,” Jesse Rehburg, actuarial manager for Capitol Preferred, told OIR regulators at an August rate hearing for its filing for a 26.2% increase on nearly 30,000 policies. It also sought a 31.1% increase on more than 46,000 policies for its Southern Fidelity Insurance affiliate. Capitol Preferred said non-catastrophe water loss claims and litigation show no signs of slowing. Rehberg noted 30% of its filed claims are represented by attorneys, and costs of represented claims are more than 100% higher than non-represented claims. In analyzing data from the Florida Department of Financial Services, industry consultant and president of Johnson Strategies Scott Johnson noted in a recent blog that 25 attorneys have filed nearly 20,000 lawsuits against insurers through the first six months of 2020, accounting for 43% of the state’s total property lawsuits so far this year. The total suits filed against 56 property carriers since 2015 totals 246,856 (see chart on page 15). Florida-based litigation management and analytics software company CaseGlide’s data showed that around 4,000 lawsuits per month were filed against the top 15 to 20 Florida property carriers during June, July and August of this year. The company attributed some of that to the rush to get claims in before the September three-year deadline for Hurricane Irma. Litigated claims increased again in September to nearly 5,000, up 7% from August and 28% from September 2019. Reinsurers have responded to the
Florida market’s increasing losses and exposure with the highest spike in renewal rates since 2006, Rollins said. Reinsurance rate increases on this year’s renewals averaged 25% to 30% with some companies seeing as much as a 50% increase. The reinsurance increases have put Florida insurers in the position where they simply can’t take on more risk, Ulrich said. “Given what their re-insurance allows them to do and write, based on some storms this summer and the exposure that they have seen in claims, they just don’t have the ability to write any more business,” he said. Agents have reported “pretty restrictive” new underwriting guidelines by carriers, including limits on new business to homes 2010 and newer, Ulrich said. Several carriers have told their agents that they will no longer accept any new business and instead will just quote renewals. “They will be renewing the business that’s on the books, and agents can buy business that has already been quoted,” Ulrich said. “But, going forward, they’re not writing any new business.” At Citizens’ June board of governors meeting, Gilway said decreased reinsurance capacity has forced companies to restructure their portfolios. Six major companies publicly announced they were shutting down all new business in Tri-County, Central Western Counties, and more recently, the SOLO counties of Seminole, Orange, Lake and Osceola. “These measures are harmful and significantly impactful to consumers in the form of higher insurance rates, reduced coverage and lack of availability,” Florida Insurance Consumer Advocate Tasha Carter said in an e-mail to Insurance Journal. “As policies are restructured to include tighter underwriting measures, consumers are paying higher insurance premiums for reduced coverage. Essentially, consumers are paying more for less and that’s problematic.” Losses so far in 2020 are not going to
“If we’re not in a crisis, I don’t know what we’re in”
continued on page 14
NOVEMBER 16, 2020 INSURANCE JOURNAL | FLORIDA | 13
News & Markets continued from page 13
help the situation, noted Robert Warren, client services manager for Demotech, at the Colodny Fass/Aon event. Demotech, which rates more than 40 Florida domestics and threatened downgrades to more than a dozen early this year before affirming them, projects a $730 million underwriting loss for those companies – almost double the amount of 2019 – based on data it has seen of weather losses, reinsurance costs and the investment in the replacement of capital the companies will need to make before the end of the year. That figure does not include losses to carriers from recent storms like Hurricane Delta, he said, which despite being a mainly Louisiana event could still impact Florida insurers that have diversified and expanded into other states. “It’s been a significant year for storm events – this is a frequency issue as well as severity,” Warren said. Companies are already taking steps to replace lost capital, Warren said, but doing so could be problematic for those that do so by taking on debt. “[Demotech] need[s] to be very aware of what that capital source is,” he said. Warren said Demotech believes carriers are “doing the right things at the right time for the right reasons,” and expects those that need capital to keep their financial stability rating (FSR) from Demotech will be able to get it. “Right now, Demotech’s expectation is they will meet our requirements to maintain or be considered to maintain the current FSR,” Warren said. Ulrich warned, however, that outside capital that has consistently invested in Florida-based carriers, may be close to the end of financing Florida’s domestic homeowners’ market. “When we get to that point where folks that have invested in this market make the decision that they’re no longer willing to invest in this market, and it becomes more difficult for companies to find and attract
capital, and their surplus is going down at the rate that it is now, that becomes a crisis situation,” he said.
Market Impact – The Growth of Citizens
With rates spiking statewide and companies pulling back capacity, many insureds have had no other choice but to turn to the insurer of last resort, Citizens. Its rates are capped on a glide path of 10% per year, meaning the company cannot raise them more than that, thus making the residual insurer a competitive alternative to the current private market. Citizens’ policyholder count stood at approximately 443,000 policies earlier this year with about $110 billion in exposure. At the September Citizens Board of Governors meeting, Gilway said Citizens is growing by 2,500 to 3,000 new customers per week on a net basis. Its new business increased from 7,770 policyholders to 17,691 per month over the past 12 months. Gilway said the increase in new business, combined with a significantly higher renewal rate of 90% this year compared to 83% last year, puts the company at an estimated policy count of 540,000 for year end 2020 and up to well over 640,000 next year. “We grow and we shrink depending upon the overall profitability of the private market,” Gilway said at the Florida Insurance Summit. “When the private market is doing extremely well then Citizens shrinks. When the private market is really succumbing to some of the problems that we’re seeing … obviously we start to grow.” The repopulation of Citizens could mean added costs for all Florida consumers. Florida law requires that Citizens levy assessments on most Florida policyholders if it experiences a deficit in its reserves in the wake of a major storm or series of storms. At its peak in 2011, Citizens had 1.5 million policies on its books – 23 percent of the Florida market – with exposure that topped $512 billion. In the event of a 1-in-100-year storm, Floridians were on
“It’s not big insurance companies – it’s the small businessmen and women, and of course the consumers paying more out of pocket for insurance”
14 | INSURANCE JOURNAL | FLORIDA NOVEMBER 16, 2020
the hook for $11.6 billion in assessments. Thanks to depopulation efforts, the reinsurance market and catastrophe bonds, Citizens was able to eliminate assessments for Florida consumers in 2015. “The growth of Citizens impacts the private market and shifts Citizens farther away from being the residual market carrier it was intended to be,” said Insurance Consumer Advocate Carter. Florida State Senator Jeff Brandes, who sits on the Banking & Insurance Committee, said one of his primary legislative goals over the next two years “is to put the Florida insurance market on a sustainable path.” To that end, Brandes worked with Citizens to commission an exposure reduction study on how the insurer could reduce its overall exposure and financial impact on the state. That study is currently being performed by analysts at Florida State University and is expected to be complete by December. Brandes said he requested the study because “the writing was on the wall.” “Anybody who is shocked that Citizens is starting to grow hasn’t been paying attention because we’ve been telling them for frankly months, likely years,” Brandes said in an interview. “We recognize that Citizens is required to only raise rates 10% a year. And often they’re losing money in certain markets and they’re being subsidized, those homeowners are being subsidized by taxpayers.” Gilway said Citizens hopes the FSU Study will provide insight as to why litigation is increasing, why severity is increasing, and into the roles of public adjusters and loss consultants, and more. He said he expects there will also be legislative recommendations along with changes in the Citizens plan of operations. Brandes has other ideas for how to keep Citizens a residual market, including transitioning its rate structure to what he calls a “vintage model.” That would involve bringing in new policies at an actuarially indicated rate while allowing existing customers to stay at the current rate cap. When policyholders renew, they would stay at the 10% glide path and new poliINSURANCEJOURNAL.COM
Suits Served vs. FL Property Carriers (Source: Department of Financial Services) Ranking & 2020 YTD Lawyer Name 2015 2016 2017 2018 2019 (as of 9/30/20) Isabal Arias Anthony Lopez Max M. Messinger Kevin Weisser Kenneth Robert Duboff Jesus David Moises Peter Mineo Jr. Thomas J. Morgan Andrew Vargas, ESQ. Leo A. Manzanilla Scot Strems Grant Krapf Hans Kennon Robert F. Gonzalez David Low Tamiron M. Brown Alexandra Ramon Jay Arnesen Michael L. Grossman Clay Kuhn Dennis N Urbano Rhonda Coren John Bernstein Corey Justus Michelle C. Lopez Total (All Suits)
71 560 0 0 407 35 292 967 201 481 327 0 10 41 230 0 0 317 51 7 188 0 0 0 -
360 789 2 0 698 44 664 1162 362 466 818 5 34 133 404 0 128 511 14 94 228 69 48 0 -
870 693 37 66 1027 145 1334 782 1164 514 1679 14 49 232 1010 0 98 838 3 162 182 350 233 0 -
1513 2093 409 726 2242 759 1326 1693 1013 486 1541 64 339 247 1516 0 403 1134 44 414 390 389 500 0 -
1650 1787 1533 1287 1404 1008 1246 1149 1015 694 1385 504 278 474 682 0 561 1351 175 342 310 332 411 221 192
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
2145 2099 1692 1434 966 885 866 831 790 731 659 609 594 576 514 497 419 395 379 378 336 316 314 311 311
22,494
29,752
31,337
58,955
60,092
44,226
2020 YTD Top 25 Total
4,185
7,033
11,482
19,241
19,991
19,047
% of Grand Total
19%
24%
37%
33%
33%
43%
Courtesy of Johnson Strategies
cyholders would reset for that vintage, he said. Brandes asked Gilway in June to request the board consider implementing this change. “Application of actuarially sound rates for new Citizens customers will bring Citizens into compliance with the statutory directive that its rates be actuarially sound and maintain Citizens as the insurer of last resort,” he wrote in a letter to Gilway. The action is slated to be discussed at the December board meeting, Brandes said. A Citizens spokesperson said actuaries will present information to the board in response to Brandes’ letter but it is unclear if any action will be taken at that time. INSURANCEJOURNAL.COM
“That seems to be the only sustainable model that will work for Citizens for the long term, given the challenge of adjusting the rate cap in the political environment,” Brandes said. Gilway said he thinks much of the business coming into Citizens right now has more to do with capacity in the market than rates. “No one’s quoting. Period,” he said at the Colodny Fass/Aon event. But in studies comparing Citizens to the private market, Citizens rate cap makes it too competitive with the private market, and that’s a problem long term, Gilway said. “The more we get out of whack with the private market … I believe it will be the
reason more growth comes into Citizens and that’s not what we want,” he said. “Our goal is to find a policyholder the best coverage at the best price in the private marketplace and get Citizens back down to the point where we have a reasonable residual market position.” OIR is monitoring the state’s property insurance situation. The regulator said the insurance market has been buffeted by multiple hurricanes in the last several storm seasons, as well as by other market challenges like AOB abuse, that “have led to high loss reserve development, increased litigation, and increased cost of catastrophe reinsurance.”
continued on page 16
NOVEMBER 16, 2020 INSURANCE JOURNAL | FLORIDA | 15
News & Markets continued from page 15
As a result, Florida carriers are recording unprecedented losses and responding with drastic rate increases and a major pullback in capacity. “Unfortunately, these developments have presented challenges not only to our property industry, but also to our consumers,” OIR stated. While it is too early to know the full impact of the new AOB law, OIR said it has issued a data call to begin tracking its effect. Starting in 2022, OIR will institute a statutorily mandated annual data call to understand the full impact of legislation on the market. Additionally, OIR is currently performing an analysis of insurer holding company affiliates. In July, it sent a letter to 60 companies it regulates requesting information of the companies that is “intended to best inform the Office how the underwriting results of your company may be improved,” the letter stated. When asked why OIR requested this info at this time, the regulator told Insurance Journal the analysis is a targeted examination of insurers to evaluate their MGAs and other affiliates within the holding company system as a “supplement to OIR’s ongoing activities throughout the year.” The analysis “was conducted as one of the ways in which OIR closely and consistently monitors the financial condition and operational results of insurers doing business in Florida, including domestic property insurers,” OIR said. The letter sent to companies asked that they identify all loans that are a source of capital and the party obligated for repayment of the loans; information regarding the payment of expenses, debt service and profitability of the affiliates; the name of each affiliate for 2017, 2018 and 2019, which is the result of the services provided to an entity or entities other than the company; and a description of services, office space or operational assistance provided by the company to each affiliate for which no fees are charged or such fees are below the market rate. Company responses to OIR regarding the request are confidential and exempt
from disclosure, the office said. “OIR’s main focus is to foster a stable and competitive insurance market and engage in regulatory activities to protect consumers,” the regulator said.
Legislative Fix
The industry says the only way to stem the tide of rising litigation and rates is to enact legislation that addresses the market’s cost drivers. Some ideas that have been floated include shortening the timeframe for filing initial hurricane loss claims from three years to two – as is the case with sinkhole damage – and eliminating the contingency fee multiplier on property lawsuits. “We think it’s entirely inappropriate to provide a [fee] multiplier to an attorney who represents a homeowner on a typical property claim,” said Michael Carlson, president of the Personal Insurance Federation of Florida. Carlson said stakeholders are looking at something similar to a law passed in Texas in 2017 to address hailstorm lawsuit abuse. That law limits liability for insurance companies following storm damage by requiring notice before a suit can be filed to allow the insurer to address any outstanding claim issues. Attorney fees may not be awarded if the court finds the insurer was entitled to but not provided with pre-suit notice. It also cuts penalties for insurers sued for offering too little money on storm claims, including wind and hail damage, while making it harder for those suing to collect attorneys’ fees. “If we just introduce some of the same statutory standards recently introduced in Texas, you can get control of some of this litigation,” Citizens President & CEO Gilway said at the recent Coldony Fass/ Aon Florida Insurance Summit. Florida State Senator Brandes said he’s working with a variety of stakeholders with a goal of putting “Florida on a sustainable path.” “We’re going to be sponsoring legislation, supporting legislation and advocating for a sustainable path that protects both the consumer and ensures that we can move away from these radical rate increases that are really ultimately the
16 | INSURANCE JOURNAL | FLORIDA NOVEMBER 16, 2020
Achilles heel of the Florida real estate market,” he said, noting that if the problems are left unchecked they will eventually take a toll on the state’s housing market. Further, Brandes has requested that the Office of Program Policy Analysis and Government Accountability (OPPAGA), the research arm of the Florida Legislature, work with the Banking and Insurance Committee and Criminal Justice Committee to analyze whether the Department of Financial Services Division of Investigative and Forensic Services and local prosecutors are effectively dealing with homeowners insurance fraud and auto insurance fraud in Florida. “Our state is experiencing unsustainable increases in property insurance losses and fraudulent property insurance claims. I am concerned that our anti-fraud efforts are increasingly unable to keep up with massive increases in insurance fraud and abusive practices,” Brandes wrote in a letter to Florida Senate President Bill Galvano. Florida Insurance Consumer Advocate Carter also urged the Florida Legislature to “consider solutions to address homeowners insurance fraud and abuse, and frivolous insurance litigation in an attempt to reverse the current litigation trajectory.” “I am committed to and am in the process of analyzing the adverse factors affecting Florida’s insurance market and their impact on consumers. I am working to develop and propose actionable resolutions for consideration,” she said. Brandes doesn’t think his colleagues are following recent headlines around lawsuit abuse, including the suspension of Scot Strems, an attorney who, with his firm, has filed thousands of lawsuits against insurers. But he said once lawmakers are back in session they can “begin to explore some of these issues and talk about the abuses that have occurred.” Carlson expects an uphill battle to get any property reforms passed in the next session, particularly after the industry fought so hard for AOB reform. Still, he is optimistic there will be some changes, though it will be incumbent on the industry to show data and litigation trends to the legislature. INSURANCEJOURNAL.COM
“We do a pretty good job, but we don’t do a tremendous job of that and that’s our burden to bear. We need to do better at it,” he said. “We have to take responsibility for gathering info and giving it to the legislature and I think we will with the help of Citizens and others … and hopefully find a solution.”
What Agents Can Do
Agents should be part of reaching a solution, Brandes said, and it starts by them reaching out to their local legislators and explaining the issues in the market, what it means for their customers, and demanding action. “They need to be telling the story of what they’re seeing in the marketplace. They need to be pounding on the desk of their local state reps and local state senators saying, ‘This is unsustainable. This is destroying the marketplace,’” he said. “The legislature reacts to people meeting with them and explaining to them the severity of the situation. But if legislators don’t hear from anybody, they think everything’s fine.” Carlson echoed that sentiment. INSURANCEJOURNAL.COM
“The stories [agents] are hearing from their customers about having a public adjuster solicit them – those stories need to be shared with the legislature,” Carlson said. “Keep the pressure on and let these elected officials know … It’s not big insurance companies – it’s the small businessmen and women, and of course the consumers paying more out of pocket for insurance.” FAIA President & CEO Ulrich said agents are having tough conversations with their customers as they try to explain why rates are going up or why their policies are getting non-renewed and have to find replacement coverage. Sometimes the agents themselves don’t necessarily understand all of the dynamics at work, which makes it difficult for them to educate a consumer. “That’s a very difficult conversation to have, but consumers need to be aware of the fact that, yes, this is happening and here are some of the overriding reasons why,” he said. “Because the more that consumers start talking to their lawmakers about what’s happening and, frankly, complaining about rates going up, the
more pressure there is going to be on members of the legislature to act.” Ulrich said the consumer education piece is critical and agents who are small business owners working in their communities have a powerful platform to get that message out – both to their customers and lawmakers. “A lot of lawmakers have an awful lot of respect for what agents do for their communities. And it’s important that agents take the time to talk to lawmakers about what they’re seeing and the impact that it’s having on their customers and, ultimately, legislators’ constituents,” he said. Brandes said more carriers need to open up to the public and put out information about what is happening via rate hearings, as those have helped show there is an actuarial need for the increases. “In fact, oftentimes the companies are requesting less than what their actuaries tell them they should be requesting,” he said, adding that market availability could get a lot worse. “I won’t be surprised if we lose three or four more companies this year.”
NOVEMBER 16, 2020 INSURANCE JOURNAL | FLORIDA | 17
News & Markets Keeping Up with Changes in Florida’s Growing Private Flood Market
F
looding is America’s number one natural disaster and as the highest “at risk” state in the country, Florida is By Garrett Mitchell the epicenter for all things flood insurance. Since 1968, when procuring flood insurance, agents and homeowners have had virtually one option: FEMA’s National Flood Insurance Program. As of 2018, the NFIP had over 5 million policies in force nationwide with nearly 1.75 million policies coming from Florida. With advancements in technology and the increased availability of reliable data, private insurers have entered into the flood marketplace providing consumers with alternatives to the historical FEMA program. The emerging private flood market brings many notable benefits to consumers across the country, but there are also a few concerns that come with it. Private flood insurance differs from the NFIP in three distinct ways: risk assessment, pricing and coverage. The process of evaluating flood risk is perhaps the most impactful difference to consider. The NFIP rating model mainly takes into consideration the FEMA flood zone and the property’s elevation. A “flood zone” is a geographical area that is rated to reflect the severity and/or a specific type of flooding exposure. Flood hazard areas identified on FEMA’s Flood Insurance Rate Map are identified as a Special Flood Hazard Area (SFHA). An SFHA is defined as the area that will be inundated by the flood event having a 1% chance of being equaled or exceeded in any given year. SFHAs are labeled as A, AO, AH, A1-A30, AE, A99, AR, AR/AE, AR/AO, AR/A1-A30, AR/A, V, VE, and V1-V30. Moderate and minimal flood hazard areas are labeled B, C or X (Fema. gov). While there are numerous flood zone categories, “Flood Zones” in nature are general and can include entire neighborhoods or sections of a city. On the contrary, private flood providers utilize “single risk modeling” to evaluate the specific and unique flood risk for each
property individually. Private flood providers feel this approach is much more effective as it can more accurately assess critical exposures such as storm surge, fluvial flooding and pluvial flooding. Unlike the NFIP, rates across the private marketplace strive to be actuarially sound, with each program using their own proprietary approach and strategy. This creates a true marketplace benefiting consumers and agents alike. Private flood programs reward properties that perform favorably in their models with competitive premiums, specifically designing their rates on these properties to be lower than the NFIP. This provides opportunity for Florida homeowners to save money and also creates sales opportunities for Florida insurance agents. This same approach holds true in the opposite direction, resulting in higher private premiums than the NFIP on properties that perform poorly in their models. The concern being, what long term effect will this have on the already struggling performance of the NFIP? With more comprehensive risk evaluation and targeted pricing, private flood providers are essentially cherry-picking all the good risks from the NFIP — leaving behind the properties more subject to flooding. In response to the substantial NFIP debt, and growing concern of private market “cherry picking,” the NFIP is rolling out “Risk Rating 2.0” which will take a more comprehensive rating approach
18 | INSURANCE JOURNAL | FLORIDA NOVEMBER 16, 2020
utilizing improved technologies that are commonplace throughout the private sector. Risk Rating 2.0 is currently scheduled to be released in October 2021. Enhancements to flood coverage and policy form is the last major category of note, and perhaps the most impactful of all. Historically, insurance professionals have been forced to accept the coverage limitations of the NFIP when providing flood insurance to their clients. With intelligent rating and competitive pricing, the private market also brings with it increased coverage limits and valuable coverage endorsements. While the NFIP has maximum limits of $250,000 for building and $100,000 for contents for residential policies, the private marketplace offers limits in excess of $10 million for building and $1 million for contents plus additional endorsements such as other structure, additional living expenses, basement contents, pool repair and refill. The goal shared by insurance professionals and advocacy groups is to better protect Americans from the country’s number one natural disaster. With advancements in technology, a growing flood marketplace and affordable intelligent pricing, we may finally have the resources needed to close the coverage gap. Garrett Mitchell is the director of Sales & Marketing for Insurance Express, a Florida insurance agency based in West Palm Beach. RocketFlood.com is Insurance Express’s flood insurance platform. INSURANCEJOURNAL.COM
2020
The LAAIA invites you to join us for our 50th Annual Convention. For the first time in our 50-year history, the Latin American Association of Insurance Agencies will be hosting a virtual convention. We are creating a fully immersive online experience that will go beyond broadcasting content sessions. This year’s convention will bring all attendees together no matter where they are with connection, energy, personality, and excitement as done in past years. We will host sessions with speakers, virtual trade show, mixology happy hour, live musical performance, & so much more! The LAAIA prides itself on being an inclusive community of passionate professionals who are eager to look forward and solve problems together, so we are excited to invite you to experience this with us and inspire what is next! Join us as we Honor the Past and Inspire the Future Together!
VISIT LAAIA.COM FOR COMPLIMENTARY ATTENDEE REGISTRATION TODAY!
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