Insurance Journal Florida Supplement 2022-06-06

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June 6, 2022 • Vol. 100 No. 10

Contents

Courts & Torts

Fraud & Litigation

Climate & Risks

Florida Appeals Court Slashes $600,000 Attorney Fee on $52,000 Claim Verdict

Suspended Attorney, Adjusters Settle Citizens Lawsuit for $1 Million

Forecasters Predict 7th Straight Above-Normal Hurricane Season

Science & Storms

Lawsuits, Investigations After 90 Luxury Cars Go Missing from Bankrupt Dealership

Coming Soon: Stadium-sized Facility to Test Monster Hurricane Winds, Waves, Storm Surge

Rates & Policies

News & Markets

sal P&C, Sheds Policies, Shows Improved Bottom Line, Then Raises Rates

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8 High-Speed Lawmaking:

Florida Governor Signs Insurance, Condo Reform Bills After 3-Day Session

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12 Florida’s Largest, Univer13

Asked to Rethink 41% Rate Increase, Florida Farm Bureau Did. New Request is Even Higher

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Sunshine State Could See Higher Risk of Wildfires in Coming Years

Insolvencies & Rehab

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FedNat Insurance Drops 68,000 Policies in Restructuring Plan

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State Agency Finally Posts 18 ‘Autopsies’ on Insolvent Insurers, But 2017 is Most Recent

Guest Commentary

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Non-Florida Insurer Reminds Insureds to Be Proactive to Mitigate Risk INSURANCEJOURNAL.COM

JUNE 6, 2022 INSURANCE JOURNAL | FLORIDA | 3


Courts & Torts Florida Appeals Court Slashes $600,000 Attorney Fee on $52,000 Claim Verdict

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ntil this summer when state trial court with instructions to reduce the lawmakers put an end to it, Florida fees and amount of billable hours to 480, had one of the most generous essentially saving Lloyd’s some $482,200 attorney-fee mechanisms in the country, in fees and costs to opposing counsel. sometimes resulting in plaintiff's' fees The appellate judges said that the that were several times greater than the expert witness for the insureds and the amount of damage awards. Miami-Dade trial judge, That’s what happened in 2018, Martin Zilber, had not when a trial judge granted more fully examined the attorneys’ hours and work than $652,000 in plaintiffs’ attorneys’ fees and costs on a $52,000 product, and had based verdict in a property insurance their numbers on seemingly arbitrary factors. claim that arose from Hurricane “I don’t know if this Irma. In May of this year, a South Florida appeals court struck down shows that the courts are Michael Sastre the oversized fees, finding that looking differently at the fees. They’re just applying the law as it is experts and trial judges must follow the written,” said Michael Sastre, the Miami fee rules precisely and must weigh specific, comprehensive evidence before allowattorney who represented Lloyd’s in the ing the “lodestar” factors and fee multipli- appeal. ers. The initial request for fees was much The trial court’s award was held up as higher. But the claimants’ own expert another example of how out of whack witness testified at an evidentiary hearing Florida’s fee multiplier system was, and that out of “an abundance of caution” he what a cost driver it has been for insurdecided to reduce the amount of hours ers – until now. During the special session by 7.5%. The trial judge went even further of the Florida Legislature in late May, and hacked the plaintiffs’ attorneys’ hours lawmakers passed sweeping changes that by 15%. essentially order judges to avoid the mulDespite that, and using the lodestar tiplier altogether except in rare and excep- factor and a multiplier of tional circumstances. 1.8, the trial judge landed Although court decisions had already on a fee that was almost established specific criteria for the mul13 times higher than what tipliers, insurance defense attorneys a jury had awarded on the charged that judges often ignored the claim. (Lloyd’s had agreed rules and awarded huge fees inapproprito pay just $2,033 on the ately. Plaintiffs' lawyers have said the fees initial claim, noting that are needed to make it worthwhile for lawsome alleged damage was yers to take on big insurance companies. not covered by the policy, Kevin Emas The recent case, Certain Underwriters at including pre-existing damage to the roof.) Lloyd’s London vs. Roniel Candelaria and The appellate judges sided with the Amelia Padura, gives a deep look at how Lloyd’s expert, Ron Kammer, a Miami lawyers and judges sometimes arrive at insurance attorney who testifies on the the eye-popping fees. reasonableness of attorneys fees in about In the decision, Florida’s 3rd District five case a year. Court of Appeal in May knocked the plainUnlike the plaintiffs’ expert and the tiffs' fee down to about $169,800, based trial judge, Kammer made an exhaustive largely on the testimony of an expert review of the lawyers’ billed hours, work witness hired by Lloyd’s of London in the products and other records, he and the case. The court remanded the case to the court explained. 4 | INSURANCE JOURNAL | FLORIDA JUNE 6, 2022

“I did a line-by-line, side-by-side comparison of the work performed versus the billing entries and the time charged,” Kammer said. He also looked at the claimant firm’s start and stop times on depositions and studied surveys showing the going rates for South Florida attorneys with similar years of experience and similar expertise in that area of the law. Kammer’s conclusion: The lodestar factor and the multiplier were not needed and the attorneys had billed too many hours to begin with. The appellate court agreed. “The trial court erred in its determination of the lodestar amount, as such an award was not supported by competent substantial evidence and involved an arbitrary, across-the-board cut," reads the 3rd DCA opinion, written by Judge Kevin Emas. The lodestar and the multiplier mechanism have long been a thorn in the side of Florida insurers. Federal courts created the lodestar factor decades ago and Florida courts adopted their own formula in 1985. It essentially seeks to provide attorney compensation based on reasonable hourly rates and a reasonable amount of time invested in the case. But Florida also allows a multiplier of 1.1 to 2.5, to encourage law firms to take on difficult cases or those in which other firms are hard to find, or if the plaintiff won’t be able to pay a retainer fee. A 2017 decision by the Florida Supreme Court upheld the multiplier method, as long as certain criteria are met. That effectively “opened the floodgates” and has drastically inflated most plaintiffs’ fees, said Mark Friedlander, director of corporate communications for the Insurance Information Institute. He added: “That’s why we’re seeing such heavy expense pressures on insurers and why some insurance companies are going out of business.” INSURANCEJOURNAL.COM



Science & Storms

The existing Wall of Wind fan system at FIU, used to test moderate hurricane winds’ effects on structures.

Coming Soon: Stadium-sized Facility to Test Monster Hurricane Winds, Waves, Storm Surge

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n the not-too-distant future, insurers should be able to see exactly which materials and construction techniques hold up best against the worst that Mother Nature has to offer: 200-mph winds, storm surges and the relentless pounding of waves – all at the same time – thanks in part to a $12.8 million grant from the National Science Foundation. The idea is to design, test and then ultimately build a state-of-the-art facility that’s unlike any other in the world, perhaps as large as a football stadium, explained Professor Richard Olson, director of the Extreme Events Institute and hurricane research at Florida International University in Miami. FIU already is home to the famed Wall of Wind facility, but that system can generate winds only as high as 157 mph, 6 | INSURANCE JOURNAL | FLORIDA JUNE 6, 2022

with little water or wave-testing capability. The Insurance Institute for Business & Home Safety in South Carolina, funded by property insurers, also tests some building systems and materials for wind, hail and rain resistance. But the proposed super-storm facility would be the first to combine all the forces of a catastrophic and unprecedented Category 6 hurricane, like one that experts fear will hit Florida and other coastal areas in coming years. The system “would be capable of putting a full-sized, two-story house at the end of a water table, with all three elements – 200 mph winds, a storm surge and wave action,” Olson said. The initial grant from NSF would fund only the research to model and design the structure. Although the grant appli-

cation suggests the research could take four years, “we should know a lot after two or three years,” Olson said. Further grant funding is expected once the design is finalized. Nine major U.S. universities are collaborating on the program. These include Colorado State University, the Georgia Institute of Technology, Oregon State University, Stanford University, the University of Florida, the University of Illinois at Urbana-Champaign, the University of Notre Dame and Wayne State University. Maryland-based Aerolab LLC, a maker of wind tunnels, also is participating. The program will begin with a smallscale prototype facility at FIU. The larger structure could be built at FIU or another institution, either by retrofitting INSURANCEJOURNAL.COM


an existing site or building a new one, the grant award notes. Joy Pauschke, of the National Science Foundation’s civil, mechanical and manufacturing innovation program, is the program manager. Arindam Chowdhury at FIU is the principal investigator. Chowdhury and FIU also were recently awarded a separate, $5.7 million NSF grant to lead further wind research using the 12-fan, 8,400 horsepower Wall of Wind system at the university. While researchers around the country have largely focused on the effects of hurricane-strength winds, less investigation has been done into how structures can better withstand waves and flooding, Olson said. The proposed facility will take that holistic approach and has been dubbed NICHE, short for National

Full-scale Testing Infrastructure for Community Hardening in Extreme Wind, Surge, and Wave Events. Now is the time to invest in what could be the world’s largest testing site, researchers said. “The risk to the nation’s society and assets, especially to civil infrastructure, e.g., residential homes, buildings, bridges, and critical utility systems, is now compounded by increasing hazard exposure and sea level rise due to anthropogenic warming,” the NSF grant award abstract explains. “The envisioned NICHE responds to a pressing national imperative to promote more resilient communities by reducing losses, population displacement, and outmigration due to climate-driven hazards, enabling

'Hurricane Dorian really got my freaking attention. It was just two days away.'

communities to thrive sustainably and equitably to improve quality of life.” The wind-and-wave research, like many aspects affecting Florida’s building codes and insurance market, began with Hurricane Andrew, the devastating hurricane that hit South Florida in 1992. “It goes back to Andrew,” Olson said. “FIU made hurricane research part of its identity. And that gave us a platform to pursue the next facility.” FIU received funding for the Wall of Wind and completed it in 2015. Andrew produced winds of 165 mph, according to news reports. But in the last few years, a few hurricanes have produced stronger winds. “Hurricane Dorian really got my freaking attention,” Olson said, referring to the 2019 storm that scraped the Bahamas with 185-mph winds. “It was just two days away and could have come to Miami.”

Professor Richard Olson and students discuss hurricane computer modeling at the Extreme Events Institute at Florida International University.

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News & Markets High-Speed Lawmaking: Florida Governor Signs Insurance, Condo Reform Bills After 3-Day Session By William Rabb

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lorida Gov. Ron DeSantis signed property insurance and condominium maintenance reform legislation into law on May 26, putting an exclamation point on a whirlwind of lawmaking that began just six days earlier when the bills were drafted and filed. “This package represents the most significant reforms to Florida’s homeowners insurance market in a generation,” DeSantis said in a statement. “These bills will help stabilize a problematic market, help Floridians harden their homes through the My Safe Florida Home Program, and pave the way for more choices for homeowners.” The two-bill package took effect immediately. Among other major reforms, Senate Bill 2D aims to put an end to the practice of contractors offering “free roofs” by barring attorney fees for those who are assigned benefits, ends the much-despised multiplier that insurers said often inflated plaintiffs’ attorney fees, and provides a $2 billion, premium-free reinsurance plan for the layer below what the Florida Hurricane Catastrophe Fund offers. Another measure that passed during the session, Senate Bill 4D, was just as significant: It modifies the state building code that often required whole-roof replacement if just a quarter of the roof surface is damaged. While the Legislature was debating the measures in the special session in late May, though, some roof contractors saw the writing on the wall and stepped up solicitation of homeowners, Florida Chief Financial Officer Jimmy Patronis said. “My office has received recent reports that unscrupulous contractors are trying to get out in front of the recent legislative changes made during special session by ramping up their solicitation schemes and sending out flyers to Florida residents,” Patronis said in a statement after lawmakers had adjourned. “I’m urging 8 | INSURANCE JOURNAL | FLORIDA JUNE 6, 2022

State Rep. Jay Trumbull, right, the House sponsor of the bills, confers with Rep. Matt Willhite on the final day. (AP)

all Floridians to beware of fly-by-night roofers and contractors looking to take advantage of consumers.” Patronis praised the legislation and the governor’s quick signing of it. Insurance Commissioner David Altmaier, whose office came under fire during the threeday legislative session, also gave a thumbs-up to changes that will require more oversight and reporting from his understaffed department. “This legislation strengthens protections for Florida insurance consumers, provides greater tools to hold insurance companies accountable, and promotes the long-term stability of our market,” Altmaier said. Some insurance industry groups had concerns about the efficacy of the new reinsurance program, and about a prohibition on insurers refusing to write homes with roofs that are 15 years old or less. But many agreed the legislation is a significant step toward reducing roof claims and litigation costs. “This is a great bipartisan achievement for Florida consumers,” said Michael Carlson, head of the Personal Insurance Federation of Florida.

“I give it a grade of C,” said Donald Brown, a former state representative from DeFuniak Springs, who now is a registered lobbyist for the Association of Bermuda Insurers and Reinsurers and the Florida Insurance Council. Rep. Ralph Massullo, R-Lecanto, praised the bill and said it was filled with “great initiatives” that address major cost drivers. Several Democrats in the House and the Senate charged that the bills help rescue insurance companies but don’t do enough to reduce premiums for homeowners. Legislative leaders agreed that most policyholders won’t see much effect for another 18 months. “This is called corporate welfare, market manipulation, trickle-down economics,” said Rep. Michael Grieco, D-Miami Beach. Grieco was referring to the SB 2D’s Reinsurance to Assist Policyholders, dubbed the RAP fund. Participating insurers will now be guaranteed up to $2 billion in taxpayer money from the state’s general fund in case of catastrophic losses. Instead of paying premiums, insurers must immediately file for a rate INSURANCEJOURNAL.COM


reduction for policyholders. The program is designed to be one-time only: Carriers that already have completed their reinsurance programs for this year can tap into the RAP fund next year. The program would provide savings of $600 million to $700 million in reinsurance premiums, which could reduce homeowner premiums by 3% to 4%, according to some back-of-the-envelope calculations by John Rollins, an actuary and former CFO for Olympus Insurance Co. The governor called the special session after lawmakers in March failed to adopt significant reform measures. The bills were crafted by the governor’s office, Sen. Jim Boyd, Rep. Jay Trumbull and others. In the end, the package ended up with stronger anti-assignment-of-benefit and stricter litigation-limiting provisions than did bills that were discussed during the regular session. Beyond the bills that were passed, the special session also put state regulators under the microscope. A number of lawmakers on both sides of the aisle charged that the Florida Office of Insurance Regulation has fallen short in monitoring for potential insolvencies, in limiting rate increases, in providing information on the industry, and in other areas. Some argued that the entire structure of insurance regulation, with duties split between OIR and the Department of Financial Services, was partly to blame for Florida’s recent troubles. “I find the Office of Insurance Regulation to be incredibly flawed,” said Rep. Anna Eskamani, D-Orlando. “When you have a position that is not elected,

Sen. Jim Boyd and Sen. Janet Cruz after the vote. (AP)

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Democratic Senators Gary Farmer, left, Jason Pizzo, center, and Lauren Book offered several amendments. (AP)

but is appointed by a position that is well-funded by insurance companies, you have a serious situation of the fox guarding the hen house.” The special session did not come soon enough for at least two property insurers in the Florida market. One day after the session ended, Southern Fidelity Insurance Co., headquartered in Tallahassee, told agents that it had suspended new and renewal business for all lines until it can complete its reinsurance coverage for the 2022 hurricane season. June 1 was the reinsurance renewal deadline for many carriers. “We deeply apologize to our agency partners for the impact this will take on your business and appreciate your commitment to us,” reads the Southern Fidelity announcement. The company also writes in South Carolina, Louisiana and Mississippi. Just before the session began, People’s Trust, once listed as the ninth-largest property-casualty carrier in the state and whose chief operating officer is former Florida Insurance Commissioner Tom Gallagher, on May 19 made a filing with the OIR. It said the company would suspend writing new homeowner and dwelling-fire policies that day. More carriers are expected to stop writing in Florida or become insolvent

this summer, thanks in part to higher reinsurance costs. Some industry activists warned that the $2 billion RAP fund would do little to help some teetering insurers because it provides a backstop only for hurricane losses. “Non-cat weather claims — those are the events that carriers are having trouble getting coverage for,” said Paul Handerhan, president of the Federal Association for Insurance Reform, known as FAIR. He added: “How many companies on June 1 are not going to be able to complete their reinsurance programs? They’ll be disappointed that we just finished a special session on insurance and they’re still in a very difficult position.” The much-anticipated condominum reform legislation was folded into SB 4D. It, too, takes effect immediately and requires inspections for high-rise condominiums, everywhere in the state, 30 years after construction. For condos closer to the coast, inspections will have to be done more frequently. Condo associations also will no longer be able to postpone needed repairs and funding for repairs. The measure was adopted 11 months after the collapse of the Champlain Towers South condo building near Miami Beach, which killed 98 people. JUNE 6, 2022 INSURANCE JOURNAL | FLORIDA | 9


Fraud & Litigation Suspended Attorney, Adjusters Settle Citizens Lawsuit for $1 Million

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now-suspended Miami lawyer, along with the successor to his law firm, a public claims adjuster and a restoration company, have agreed to pay a total of $1 million to settle a lawsuit brought by Citizens Property Insurance Corp. that had accused the defendants of fraud in hundreds of insurance claims. The settlement is far less than what Citizens, Florida’s largest property insurer, had initially sought from attorney Scot Strems and his co-defendants. But officials said it should help deter other bad actors in a fraud-plagued Florida litigation environment. “This settlement certainly accomplishes what we set out to do, which was to seek justice for what we saw as an egregious fraud and to expose the threat of this type of activity,” said Joseph Theobald, senior director of Citizens’ special investigations unit. The settlement is the latest development in what Florida insurers have called widespread, coordinated deception and exaggeration in assignment-of-benefits claims, which have reportedly cost carriers millions of dollars. Citizens filed the suit in 2020. That was about the same time that the Florida Bar moved to suspend Strems for violating numerous Bar rules, including filing thousands of lawsuits against insurers, many of them on the same claim. Strems’ suspension from practice is due to end later this year. Also named in the suit and settlement are Contender Claims Consultants in Miami and its principal Guillermo Saavedra; and All Insurance Restoration Services and company leaders Cesar Guerrero and Derek Parsons. 10 | INSURANCE JOURNAL | FLORIDA JUNE 6, 2022

In a separate action, the Florida Supreme Court in April suspended another Strems attorney, Gregory Saldamando, for failing to inform homeowner clients of a settlement amount and attorney fees in a sinkhole claim lawsuit. Florida’s chief financial officer, Jimmy Patronis, said the Strems settlement and the investigations that led to it were significant. “Had this fraud been left unchecked, it could have cost policyholders $16 million a year,” Patronis said in a statement. “As criminal investigations continue, this action sends a loud signal that if you’re ripping off customers, we’re going to find you and hold you accountable.” Patronis did not say what he based the $16 million figure on, but a Citizens spokesman said that the Strems law firm was responsible for as much as $112 million in questionable claims and litigation filed from 2015 to 2020. The Strems firm closed in 2020 and most of its attorneys formed a new firm known as The Property Advocates. A lawyer for Strems and the new firm said Thursday that the $1 million settlement was a pittance compared to the $65 mil-

lion that Citizens had demanded early in the legal process and that it did not cover the insurer’s investigative and legal costs. The defendants agreed to settle in order to limit further expenses and to move on, said attorney William Schifino Jr., of Tampa. “This is not a victory for Citizens by any stretch of the imagination,” Schifino said. He noted that at a 2021 hearing, Miami-Dade Circuit Judge Michael Hanzman, the same judge who is overseeing a $1 billion settlement in the Champlain Towers condominium collapse, questioned the sagacity of Citizens proceeding with the lawsuit. “I would strongly encourage Citizens, before it requires the taxpayers to fund this litigation much longer, that it seriously explore potential resolution, given the limited nature of the funds that may be available as well as the legal obstacles to this claim,” the judge said, according to an official transcript of the hearing that Schifino provided to the Insurance Journal. Citizens’ spokesman Michael Peltier pointed out that Citizens is not funded through taxes, but through premiums INSURANCEJOURNAL.COM


paid by policyholders. Florida law requires that the insurer levy additional assessments on policyholders only if it experiences a deficit in the wake of catastrophic losses. Schifino said that Citizens’ years-long investigation “was proving to be very expensive to Citizens,” but had produced little evidence against his clients. he said. Citizens said its investigative unit began digging into the Strems firm in 2016, after seeing suspicious patterns in claims and claims litigation. Investigators sifted through more than 5,000 claims and found that many of them followed a similar track, Peltier explained: Most were filed within 45 days after a loss; multiple claims were filed at the same time; claims were filed after repairs had been completed and after an AOB

agreement had been signed; the same plumber, water mitigation company and adjuster were usually used; and boiler-plate plumbing invoices were used in some cases. Citizens sent about 400 cases to the Department of Financial Services’ Division of Investigative and Forensic Services, which initiated its own investigation. In 2020, Citizens went ahead with its lawsuit, alleging that the defendants had formed an illicit enterprise, all working together to defraud insurers. The enterprise violated state and federal anti-racketeering laws, created false invoices and inflated the cost of claims, mostly on non-weather water damage, the suit charged. The alleged fraud usually began with a Contender adjuster promising free home remodels to homeowners, the lawsuit’s

392-page amended complaint reads. Once inside the home, “Contender sheds its public adjuster duties” and begins working for the enterprise to manufacture claims and damages. “Contender convinces homeowners to provide intake data and sign an agreement on a (computer) tablet to help adjust their claims,” the complaint reads. “In truth, however, Contender is serving as an unlawful law firm agent to solicit clients for Strems Law Firm, and as a feeder to AIRS (All Insurance Restoration Services). The tablets point to hirestremslaw.com, which was designed to create retainer agreements between the homeowners and Strems Law Firm, without any discussion with the law firm or any attorney.” In answers to the complaint, the defendants denied wrongdoing.

Lawsuits, Investigations After 90 Luxury Cars Go Missing from Bankrupt Dealership

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awsuits and criminal accusations have erupted after a luxury car dealer in South Florida filed for bankruptcy and as many as 90 Lamborghinis, Ferraris and other high-priced cars disappeared from the dealership. At least nine people have filed suit in Broward and Palm Beach counties, alleging that they bought the vehicles but they were never delivered, or that the titles are missing and ownership is in dispute, the South Florida Sun Sentinel reported. Boca Raton police also have opened at least 26 investigations regarding alleged fraud over the cars, after Excell Auto Group declared bankruptcy in April. The INSURANCEJOURNAL.COM

business and others were owned by Scott and Kristen Zankl, the newspaper reported. Derek Stephens, who is suing two businesses involved in the case, said he lost a 2013 Ferrari 458 Spider that he had left on consignment at one of the Zankls’ businesses, Karma of Palm Beach, according to the Sun Sentinel. Karma reportedly told Stephens that the car was taken by the company’s landlord in a dispute over unpaid loans. Karma had agreed to pay Stephens $230,000 if it sold the vehicle, Stephens’ lawsuit states. “Some people don’t feel sorry for him, having that kind of car,” said Stephens’

attorney, Darin Mellinger. “Even still, it’s a sad situation.” Plaintiffs will likely have to wait months or years before the disputes are settled while the bankruptcy court sifts through all creditors that may be owed money by the dealership and related businesses. The Excell Auto Group bankruptcy petition estimates that it owes $10 million to $50 million to as many as 49 creditors. Assets available for distribution to unsecured creditors range from $0 to $50,000, the filing shows. The court has asked the dealership’s owners to produce a list of all the missing cars locations. JUNE 6, 2022 INSURANCE JOURNAL | FLORIDA | 11


Rates & Policies Florida’s Largest, Universal P&C, Sheds Policies, Shows Improved Bottom Line, Then Raises Rates

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mid growing concerns about the health of Florida’s property insurers, the state’s largest carrier posted a somewhat mixed bag of financial results for the first quarter of 2022. But the company said it has taken some big steps to reduce exposure and expenses. Universal Insurance Holdings, the parent company of Universal Property & Casualty Insurance Co., said in its Q1 financial information that its combined ratio had dropped sharply compared to the end of 2021, to 97.9%. But the ratio was up slightly compared to this time last year, the publicly traded company reported. Net income for Q1 2022 was $17 million, down from $26 million in the first quarter last year, but much stronger than the $48 million loss reported at the end of last year. Total revenue increased from the first quarter of 2021, but was down a bit from the final quarter of 2021. “We reported a 16.9% annualized ROE despite the challenging external environment, which is a testament to the strength and resilience of our business,” CEO Stephen Donaghy said in a statement. Net investment income for the first quarter was $4 million, up slightly from the end of 2021 and significantly higher than in the first quarter last year. Direct premiums written fell slightly from Q4 2021 but were up 8.5% from this time last year, the financial report shows. "Meaningful rate increases benefited premium volumes,” the CEO said. Donaghy said that in addition to raising rates, the company has shed policies in “less profitable geographies,” tightened underwriting criteria and renegotiated agencies’ commission rates. The number of policies in force has fallen significantly, from 976,250 in March 2021 to 916,745 at the end of March 2022. Universal, which turns 25 this year, is still slightly ahead of the state-backed 12 | INSURANCE JOURNAL | FLORIDA JUNE 6, 2022

Citizens Property Insurance Corp. in the number of policies it holds — but probably not for long. At the end of March this year, Citizens reported some 817,926 policies in force, but officials have said that number is expected to top 1 million by year’s end. “Given our strong capital position, the profitability of our business and the steps we continue to take to improve results, we believe we stand out favorably as reinsurers increasingly differentiate amongst cedants in the current market,” Donaghy said. Just two weeks after the Q1 earnings call, in mid-May, the carrier filed for a 14.9% average rate increase for all homeowners policies, including a 17.3% hike for HO-3 coverage. It also introduced a new endorsement that restricts payments for emergency repairs to $3,000 or 1% of Coverage A in homeowners’ policies, whichever is greater. The rate increase was made under a “use and file” provision, meaning that the higher premiums will take effect in June unless and until the Office of Insurance Regulation rejects the plan. If approved, it will be the seventh approved rate increase for Universal since late 2017, a cumulative

65% increase for homeowners. “UPCIC has continued to geographically expand and diversify its operations in Florida and management remains committed to the policyholders of this state,” reads Universal’s explanatory memorandum about the rate hike. “That commitment is strengthened through this selected increase, which will allow the company to continue to offer an insurance program that is priced appropriately for all types of policyholders.” The company said the increase was tempered somewhat by the expectation that the Florida Legislature would enact statutory changes during the May 23-27 special session. Lawmakers obliged and passed significant reform measures designed to reduce litigation costs and roof claims and to provide insurers with a no-cost layer of reinsurance. The Universal filing noted that heavily populated South Florida continues to be the source of much of the claims litigation, with more than half of represented claims originating in Miami-Dade, Broward and Palm Beach counties. “The Company believes this to be an underlying cause of observed trends that vary between the two regions (South Florida and the rest of the state), and further support for developing separate indications,” the filing memo reads.

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Rates & Policies Asked to Rethink 41% Rate Increase, Florida Farm Bureau Did. New Request is Even Higher By William Rabb

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hen Florida Farm Bureau Insurance companies filed for a 41% average rate increase for homeowners last December, the Florida Office of Insurance Regulation asked company actuaries to sharpen their pencils, review all data and try again. The insurer’s vice president said in May that the company did just that — and ended up with an even larger rate request of 48.7%. “We went back to the drawing board. We submitted a new version of the indications” and even threw in another quarter of loss data, Florida Farm Bureau’s Ben Kimmons said at an OIR rate hearing May 18. The result of the re-review was that loss costs and loss development factors have only grown since 2021, thanks to an increase in the frequency and severity of wind claims, the growing impact of inflation on building material costs, a reinsurance price hike and litigation expenses. It’s the latest indicator of the challenges that property insurers are facing in the troubled Florida market. Even with recent legislative reforms, several rate increases are pending and more are on the way, insurance companies have said. Kimmons was asked about the nature of the non-hurricane wind claims: “I categorize the losses mainly as roof claims,” he said at the hearing. “Many more roof claims with much higher costs.” His words echoed what several other insurers have said over the past two years about potentially exaggerated or even fraudulent claims about Ben Kimmons INSURANCEJOURNAL.COM

roofs that may have little more than age-related wear and tear. Farm Bureau has been harder hit than some, less than other insurers. It has felt net losses for seven straight quarters, from 2019 through most of 2021. The company also saw a downgrade in its financial strength rating in March of this year. To deal with the losses, Florida Farm Bureau, a subsidiary of Mississippi-based Southern Farm Bureau, has taken a number of steps. In February, company officials announced an end to new business in Florida, at least until its rates rise sufficiently. The carrier also has said it will not write homes with shingle roofs 20 years old or older. Farm Bureau also has instituted an alternative-dispute resolution to help keep claims disputes out of litigation. But company President Steven Murray said that alternative resolutions appear to trigger an increase in the dollar amount of claims. The carrier also is in the midst of launching a contractor network, asking policyholders to use only those restoration companies approved by the insurer. Murray noted that Farm Bureau has been subjected to far fewer assignment-of-benefits claims than have some insurers: Less than 4% of claims from Hurricane Michael in 2018 were from AOBs, far below the state average for the largest 17 property insurers. He attributed that to rapid response from the company’s agents and adjusters who have aimed to reach homeowners quickly after storms — before public adjusters or con-

tractors could swoop in with AOB forms. If the 48.7% average rate increase is approved, the average spike in premium for Florida Farm Bureau’s HO-3 renewing policies would be about $1,200 annually. Florida Farm Bureau General Insurance Co. and Florida Farm Bureau Casualty Co. together reported 80,380 policies in force in Florida at the end of 2021. “The day we get our rates adequate, we would like to start writing new business,” Kimmons said. The OIR held two other rate hearings the same day. Kin Interinsurance Network had requested a 25.1% increase in homeowners multi-peril rates and First Floridian Auto and Home Insurance Co. asked for a 22.9% increase. At the First Floridian hearing, company Vice President Bob Aaron noted that his company has considered offering policies that would prohibit the use of assignment-of-benefits agreements. “But based on the trends we’re seeing in the industry, I don’t feel it would be effective,” Aaron said. After the passage of legislation in 2019 that sought to limit AOBs, contractors and attorneys have found other ways to directly access insurance benefits in claims, he noted. Tampa-based First Floridian, a unit of The Travelers Indemnity Co., had 12,750 policies in force in Florida at the end of 2021, the OIR has reported. JUNE 6, 2022 INSURANCE JOURNAL | FLORIDA | 13


Climate & Risks

Forecasters Predict 7th Straight AboveNormal Hurricane Season By Erwin Seba, Reuters

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he 2022 Atlantic hurricane season is poised to deliver another round of above-normal storms for the seventh consecutive year, the National Oceanic and Atmospheric Administration has predicted. NOAA forecasters estimate 14 to 21 named storms, six to 10 of which will become hurricanes, with three to six of those developing into major hurricanes during the June 1 to Nov. 30 season. A tropical storm brings sustained winds of at least 39 miles per hour (63 kph), a hurricane has winds of at least 74 mph and major hurricanes pack winds of at least 111 miles per hour and can bring devastating damage. Last year’s 21 named Atlantic storms cost about $80.6 billion in insured damages in the United States. Almost half of 14 | INSURANCE JOURNAL | FLORIDA JUNE 6, 2022

that was from Hurricane Ida, a Category 4 hurricane when it struck Louisiana, and which continued to bring winds and flooding all the way to New York. Climate change is warming ocean temperatures that have led to more destructive and damaging storms, forecasters said. And this year’s warmer-than-average sea temperatures and trade wind patterns promise an above-average season, NOAA Administrator Rick Spinrad said. “We simply can’t point to a particular storm, a strong storm like Hurricane Ida, and say ‘there is climate change,’” Spinrad said. NOAA focuses on weather patterns, warming sea temperatures and west African monsoons “as the climatological factors we’re looking at” as key factors. NOAA’s prediction follows Colorado State University’s outlook, which last

month predicted 19 named storms, nine hurricanes and four major hurricanes. An average year generates 14 named storms and seven hurricanes. NOAA increased these numbers for a normal season last year after a recalculation, citing improved satellite monitoring and climate change. Unseasonably high temperatures, warmer seas that provide energy for tropical cyclones and a La Nina weather pattern that is expected to persist this season all influenced the outlook, forecasters said. This year’s hurricanes could also bring more rain, just like they did in 2020, other researchers said. Human-caused climate change made the entire season in 2020 drop about 5% more rain. During the 14 storms that reached hurricane status, the rainfall was 8% heavier, according to the study in Nature Communications, a research journal. And there’s another concern. As global warming supercharges ocean temperatures, a little-known current in the Gulf of Mexico may also be preparing to wreak some havoc, some meteorologists have said. The Loop Current is a current of water that flows into the Gulf, formed when warm water from the Caribbean crosses northward toward the mouth of the Gulf, according to Gizmodo, a news outlet. “It’s like an elbow in a river,” said Brad Panovich, the chief meteorologist at WCNC Charlotte in North Carolina. “That little elbow goes up into the Gulf of Mexico, and it becomes a loop, like if you have a piece of string and there’s a loop in it.” Unlike much of the rest of the Gulf, where a shallow layer of warmer water sits on top of much colder layers, the water in this current is warm and deep, going down hundreds of feet. That may help it to supercharge storms once they enter the Gulf. “It’s the 800-pound gorilla in the Gulf,” University of Miami oceanography professor Nick Shay told the Verge, a news website. INSURANCEJOURNAL.COM


Sunshine State Could See Higher Risk of Wildfires in Coming Years

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erhaps the rain from hurricanes can help extinguish the wildfires. That may be the only silver lining to computer modeling reports suggesting that just as hurricanes and flooding from tropical storms are likely to increase in Florida in coming years, so will the risk of wildfires across large parts of the state. A report from First Street Foundation predicts that the risk of wildfire in South and Central Florida will double by 2052. “Florida is already a hot place, and it’s seeing an increase,” Matthew Eby, executive director of the climate research organization, told the Miami Herald. “What you end up with is a pronounced effect on the chances of wildfire risk.” Trees downed by hurricanes produce fuel for wildfires, the Herald noted. Another problem for Florida is density. The state already sees its share of wildfires in drier months, but those have largely been in more rural areas. As the state continues to grow in population and becomes more developed, more homes and businesses are at risk of burning, a growing concern for property insurance interests. First Street’s report shows that in 2022, six Florida counties ranked in the top 20

for properties with an elevated chance of burning. Polk County ranked highest at number five, with 335,000 properties at risk, according to the group’s 5th National Risk Assessment. Florida now has more than 3.93 million parcels at risk, not far behind California, with 4.65 million properties, and Texas, with 4.56 million. The number of properties in fire’s way will increase as the climate warms, the report said. Central and South Florida will see elevated numbers, but so will northern parts of the state, under some scenarios. “Enhanced understanding of the speINSURANCEJOURNAL.COM

cific nature and location of wildfire risk enables communities to more effectively lobby for funding for fuel treatments, prescribed burns, and other wildfire risk mitigation strategies that may be used to reduce risk to houses, businesses, and

communities across the U.S.,” the report noted. First Street provides a tool on its website that allows users to search the longterm risk of floods and wildfires by location.

“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!

“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

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 JUNE 6, 2022 INSURANCE JOURNAL | FLORIDA | 15


Insolvencies & Rehab FedNat Insurance Drops 68,000 Policies in Restructuring Plan; Hale Partnership Puts $15 Million into Monarch National By William Rabb

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lorida insurance agents and 68,000 policyholders will have until the end of June to find new homeowners and dwelling coverage, under a financial restructuring plan submitted by FedNat Insurance and its sister companies. But unlike an insolvency, FedNat Insurance Co. will not be liquidated, and will continue to pay some open claims, at least for a while. That could help the Florida Insurance Guaranty Association avoid having to, once again, raise the assessment on other insurers, industry insiders said. “The early cancellation of policies ... is an extraordinary statutory remedy reserved to address insurers which are or may be in hazardous financial condition without the cancellation of some or all of its policies,” reads a May 13 consent order filed by the Florida Office of Insurance Regulation. FedNat’s short-notice restructuring plan was ordered by the OIR in April after the Demotech rating firm downgraded FedNat’s financial standing, from “A exceptional” to “S substantial.” The rating suggests that FedNat still has substantial reserves, but that’s not enough for Fannie Mae and Freddie Mac, which don’t recognize the S rating. That could have forced thousands of insureds to find new coverage. Some type of restructuring was not unexpected, after the publicly traded FedNat Holding Co. reported more than $103 million in net losses in 2021 and $31 million in losses for the first quarter of this year. 16 | INSURANCE JOURNAL | FLORIDA JUNE 6, 2022

FedNat Insurance also announced in November that it was pulling out of Texas, Louisiana, Mississippi, Alabama and South Carolina. “Property insurance exposure to Louisiana and Texas ... has come back to haunt insurers such as FedNat,” thanks to hurricanes and a massive winter storm in the last two years, ALIRT Insurance Research said in a recent report. FedNat’s chief financial officer, Robert Jordan, also resigned in May, according to a filing made May 18 with the U.S. Securities and Exchange Commission. He will be replaced by chief accounting officer Erick Fernandez. The news follows the resignation of chief operating officer, Patrick McCahill, who resigned at the end of 2021. The Florida cancellations will likely mean further anguish for agents and for homeowners who, at the start of hurricane season, are now facing a tightened market with fewer carriers, higher premiums, and more policy restrictions. “I don’t know what companies will be willing to take on these policies,” state Sen. Jeff Brandes, R-St. Petersburg, told the South Florida Sun Sentinel.

He surmised that most of the insureds will have to turn to Citizens Property Insurance Corp., the state-created insurer of last resort that has ballooned and will soon become the largest carrier in the state. FedNat, based in Sunrise, Florida, sent a notice to its agents, explaining some information about the sudden changes. Some 56,500 FedNat Insurance policies will be canceled, including HO-3, HO-4, HO-6, and DP-3 policies. Sister company Maison Insurance, which is not domiciled in Florida, will drop some 3,300 policies. Monarch National, based in Florida, will cancel about 8,400 policies but will also take on FedNat’s remaining 83,000 policies, according to the consent order. The company announced in late May that Hale Partnership Capital Management has agreed to invest $15 million in Monarch. FedNat Insurance will also contribute some capital to Monarch, “further endhancing MNIC’s surplus position,” company officials said in a statement. Hale Partnership, based in Charlotte, North Carolina, is a hedge fund and investment firm that was launched in 2010, according to the firm’s LinkedIn page and other sources.

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Insolvencies & Rehab State Agency Finally Posts 18 ‘Autopsies’ on Insolvent Insurers, But 2017 is Most Recent By William Rabb

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week after a Florida news report pointed out that few people seem to know that post-insolvency autopsies are required by law, the state Department of Financial Services has posted 18 of the reports for property insurers online. The reports, which could help shine a light on the exact causes of some carriers’ insolvencies, don’t include some of the most recent liquidations. For property-casualty insurers, the reports run from 2012’s Coral Insurance Co. to AequiCap Insurance, National Group Insurance and Northern Capital in 2017. The Miami Herald and the Tampa Bay Times reported in May that few state officials knew about the post-mortem reports,

which are done by accounting firms and could give insight on preventing insolvencies, as more Florida insurers struggle to stay afloat. Only one report had been made available until now, the newspapers reported. A spokesman for DFS said the autopsies can take months or more to complete and are not usually posted until litigation over the insolvency is completed. The link on the DFS website was provided to lawmakers ahead of Florida’s special session, which was convened to consider ways to prevent further insolvencies in the state’s distressed market. One piece of legislation that was approved at the session will now require that initial autopsy reports be completed within two months of the initiation of insolvency proceedings, and a final report

no later than 30 days after the final proceedings. Some of the existing reports don’t provide great detail about the reasons for an insolvency. For National Group Insurance, for example, the analysis is just 10 pages long. But it does highlight the type of financial move that a prominent lawmaker railed about during the special session:. National Group had ceded all of its direct premiums and risk to its parent company. The autopsy report did not say exactly how much that contributed to the company’s financial troubles. “The NGIC insolvency was a direct result of NIC being put in rehabilitation and the cancellation of the 100% quota share reinsurance agreement,” the report concluded. The company's surplus remained stable until about 2010.

LEADING THE WAY SINCE 1952.

For over 60 years, clients seeking specialized insurance have looked to shellyins.com / Toll Free: (800) 342-2498 / (904) 354-7711

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JUNE 6, 2022 INSURANCE JOURNAL | FLORIDA | 17


Guest Commentary A View from the Sidelines: Non-Florida Insurer Reminds Insureds to Be Proactive to Mitigate Risk

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he Florida Legislature passed some significant reforms at the special session in May, but that doesn’t mean the insurance crisis is over with. Insurers and reinsurers are fleeing the state of Florida as fast as they can. By Ken Gregg, Hurricane season CEO of Orion180 here, and not only can people not get homeowners insurance, those that have it are waking up to double-digit rate increases in their policies, or worse, seeing their policies being canceled outright. This trend has been building in Florida, with 68,000 policies canceled by one insurer in May. There’s no guarantee that we will not see more of this in the near future. The destabilizing effects of record catastrophic events, (i.e., hurricanes, storms, riots), near-record inflation, and the refusal to listen to those sounding the alarm has resulted in a market that is in freefall. The ripple effect is having widespread ramifications for the state of Florida, for the insurance companies and for the insureds themselves. Florida insurance capacity is shrinking, and finding other carriers with the ability to absorb this much volume will be challenging. This destabilization is causing operational chaos within the industry. Agencies that have spent years writing thousands of policies with carriers that suddenly abandon the market will now have to pivot quickly and move all those years of work and established business to another carrier. Layer this on top of rate hikes while attempting to educate consumers on current market conditions and you have an extra dose of stress. For the insureds, it means additional hoops they are forced to jump through just to get the same cover18 | INSURANCE JOURNAL | FLORIDA JUNE 6, 2022

age. These hoops could include additional home inspections and significant price increases. To mitigate this crisis, insureds must be proactive. A home will likely be the biggest investment for most; it is a point of pride to be a homeowner and they should take it seriously. Their homes should be maintained through yearly inspections and improvements should be made wherever necessary. Not only will this increase the value of the home, but it will stave off any major repairs or costs by catching any problems early. They can also take actions to show insurance companies that they are serious about their investment in the home. These actions could be as simple as raising their credit score, or even taking on a higher deductible. These actions show an insurance company that the insured is willing to take on more of the risk, and as such, the insurance carrier will generally respond with lower premiums. In addition, there are a variety of discounts that insureds can take advantage of. These range from marital status to veteran status, to upgrading your home by putting on a new roof. There are also discounts for going more than five years

without filing a claim. Bad news can grab all the headlines, but the good news is that carriers like Orion180 have strengthened positions in CAT-exposed areas, such as the Gulf and the Carolinas. We have been helping agents and insureds by very carefully analyzing our book. We are making sure we are not overexposed in one specific area and ensuring that homes meet our underwriting guidelines. We currently have 80,000 policies in force, with 100,000 to be enforced by the end of the year. While Orion180 does not provide leak detection devices, we do offer discounts for admitted policies that install leak detectors. Orion180 is a technology-focused insurance company that combines our proprietary systems with real time feedback and exceptional customer service. While not in Florida, we are servicing insureds in Mississippi, Alabama, Tennessee, Georgia, North Carolina and South Carolina. Our mission is to provide service to independent insurance agents and insureds in a way that simplifies the insurance industry for both the seasoned and the uninitiated.

INSURANCEJOURNAL.COM


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