Don Brown

Insurance Journal
Editorial
April 29, 2011

A Florida insurance company is on its way to closing its door as it informed agents it is going to start dropping policyholders when their policies are up for renewal.

Argus Fire & Casualty, a subsidiary of the Miami Gardens-based United Automobile Insurance Co., has roughly 15,000 policies in force. The insurer has been under regulatory review since last year. Regulators agreed to let the insurer go into run-off mode as opposed to be taken by the state.

A.M. Best indicated the insurer was having problems as far back as 2008 and it lost its Demotech rating in March 2010. Last year, regulators allowed Argus to move 4,000 policies it had taken from the Citizens Property Insurance Corp. back into the state-run insurer.

http://www.insurancejournal.com/news/southeast/2011/04/29/196629.htm

South Florida Sun-Sentinel
Editorial
April 28, 2011

Argus Fire & Casualty Insurance Co. has started informing insurance agents that it will start dropping policyholders when they’re up for renewal.

Argus, owned by United Automobile Insurance Company in Miami Gardens, has roughly 15,000 policies. It wrote its agents to say that it’s putting its policies in “run-off.” That means, as one agent explained it, that regulators will allow the company to stay in business for now and let existing policies run their course until renewal.

Officials from Argus and United Automobile could not be reached despite phone calls and the Office of Insurance Regulation could not be reached despite an email to four employees.

Rating agency A.M. Best flagged problems with Argus as early as 2008 and it withdrew its rating with Demotech in March 2010.

Last year, regulators allowed Argus to move roughly 4,000 policies it had taken from Citizens Property Insurance back into the state-backed insurer.

http://articles.sun-sentinel.com/2011-04-28/news/slf-argus-insurance-folding-link-042811_1_argus-fire-drop-policies-citizens-property-insurance

The Tampa Tribune
by Representative John Wood
April 28, 2011

There are several observations of Florida’s homeowners’ insurance market on which everyone can agree.

Despite six hurricane-free years, there aren’t enough insurance companies competing for our business, and most consumers have limited choices for insuring their homes. State government is too involved in the homeowners’ insurance business, and when the state runs out of money to pay hurricane claims, every Floridian with a home, auto, boat or business policy will be taxed to cover the shortfall.

And, if this state is ever going to restore choice and competition to homeowners’ insurance, and eliminate the financial risk we all face if a major hurricane hits, we must address the factors that are unnecessarily driving up insurance costs in this state.

That’s the rationale behind legislation that state Sen. Garrett Richter, R-Naples, and I are sponsoring this legislative session. SB 408 and HB 803 are meant to benefit consumers and to help bring healthy competition back to our insurance marketplace, by addressing the unnecessary costs that chase insurers away and increase premiums.

Special interest groups benefiting from the current system have orchestrated criticism that these bills are anti-consumer. The truth is these bills are pro-consumer, pro-rate payer and pro-taxpayer. In fact, state Insurance Commissioner Kevin McCarty has testified that reining in some of these unnecessary cost drivers is essential to restoring our homeowners’ insurance market.

What do these bills actually say?

One provision requires insurance companies to increase their minimum surplus from $5 million to $15 million. In recent years, Florida has seen several small start-up insurers fail because they were undercapitalized.

The House bill would reduce from five to four years the deadline for filing claims after a hurricane. This is common sense. If a hurricane hits your home, do you really need more than four years to determine if you have damage?

Another provision in the House bill requires homeowners who file a sinkhole claim to use the claim payments they receive to actually fix their homes.

Finally, there’s a provision allowing insurers to pay contractors in installments as damaged homes are fixed – rather than making a lump sum payment up front. The intent is to encourage homeowners to actually repair their homes, rather than use claims money for something else.

Critics falsely contend that policyholders would be forced to pay out-of-pocket payments for repairs – that is absolutely untrue.

State government missed an opportunity in these hurricane-free years to remove barriers that would improve the insurance market and scale back government-run Citizens Property Insurance Corp. Our current public policy path hasn’t created more choices or competition for consumers. Call your legislator and tell them to support SB 408 and HB 803, which will start us on that path.

State Rep. John Wood (R-Winter Haven) is vice chairman of the House Insurance and Banking Subcommittee.

http://duke1.tbo.com/content/2011/apr/28/MEOPINO1-eliminating-unnecessary-costs-will-help-c/news-opinion-commentary/

Orlando Sentinel
by Aaron Deslatte
April 27, 2011

TALLAHASSEE – Two opposing worldviews of Florida’s insurance market are clashing as the Senate debates a broad insurance de-regulatory bill that the industry has been pushing. In the new pro-industry, post-Charlie Crist chamber, senators beat back an amendment Wednesday to require insurers to continue to provide sinkhole coverage.

The bill, SB 408, among many other deregulatory changes, repeals the requirement that private insurers include sinkhole coverage in their mandatory offerings. Insurers have argued that sinkhole claims have exploded throughout the state because of fraudulent claims.

But Sen. Mike Fasano, R-New Port Richey, has a district at the epicenter of sinkhole claims and has argued that sinkhole damage has gotten so severe that mortgage lenders are now mandating coverage and forcing would-be homebuyers to purchase more-costly out-of-state coverage.

“You will have people who want to buy a home in this state who will not be able to get sinkhole coverage and will not be able to get a mortgage,” Fasano said.

“Talk about an economic disaster. We are already having problems selling homes in this state.”

Fasano offered an amendment to keep the sinkhole coverage requirement in law.

But Senate Budget Chairman J.D. Alexander, a former insurance chairman from Lake Wales, has quarreled with Fasano for years over former Gov. Crist’s push to lower rates. He argued forcefully on the floor that Fasano’s amendment would allow people with “a crack on the sidewalk” to continue milking millions of dollars in fraudulent claims and driving up rates.

“What we’re talking about isn’t advocating for the people. It’s advocating for the people who are mining tens of millions of dollars in a cottage industry,” Alexander said.

“At some point in time we have to start saying we need some sanity to this issue.”

And of course, no chance to take at shot at Crist has gone to waste.

So the bill sponsor, Sen. Garrett Richter, R-Naples, said the former governor “didn’t care” whether the insurance market in Florida was sound has he drove lawmakers and the Office of Insurance Regulation to freeze rates during his term.

As a result, Florida’s private carriers and the state-run Citizens Property Insurance are woefully under-funded to deal with a catastrophic hurricane.

“If it comes this year, we’re too late,” Richter said.

The amendment went down, 12-20.

http://blogs.orlandosentinel.com/news_politics/2011/04/senate-sinks-into-sinkhole-squabble.html

Tallahassee.com
by Kathy Fain
April 27, 2011

Florida homeowners are finding it increasingly difficult to get good, affordable insurance coverage.

Many companies have left the state, some are significantly under-funded, and others are limiting their policy-writing here.

This is a result of increasing costs within the system driven by poor public policy — even without any hurricanes in the past five years. Due to loopholes in the law, some Floridians are “gaming” the property insurance system and getting paid for something they didn’t actually replace or repair. But that’s legitimate under current Florida law.

Some of the problems driving up the costs of homeowner’s insurance for Floridians could be eliminated if payments were made when repairs are actually done, or when the property lost is actually replaced. Currently, companies must pay for the full replacement costs up front.

Second, wouldn’t it seem obvious to most people that they had suffered a loss to their property minutes, hours, days or weeks after something happened?

Yet Floridians have up to five years to file a claim. Some public adjustors have created a lucrative “cottage industry” by visiting neighborhoods and offering free goods to encourage consumers to file claims. They promise significant payment from insurance companies — for up to five years after the event. This has to be stopped.

Another cost driver is the exploding number of sinkhole claims, even in areas that historically have had little to no sinkhole activity.

Insurance companies are not bringing in the appropriate premiums to cover these claims. In 2009, Citizens Property Insurance Corp., which we all support through assessments on our insurance policies, received $19.6 million in premiums for sinkhole coverage, but paid out $97 million in claims.

Citizens is already woefully underfunded. Who do you think is going to pay the difference? All consumers of insurance in Florida, that’s who. Just watch your assessments increase year after year as this deficit is paid.

Florida’s legislators must make it a priority to reduce costs and close loopholes in order to make the market a better place for consumers to buy coverage at reasonable prices. They have the opportunity this year to do so by supporting Senate Bill 408 and the companion House Bill 803.

Otherwise, things will only get worse when the wind blows again in Florida.

http://www.tallahassee.com/article/20110427/OPINION05/104270310/Kathy-Fain-Gaming-the-insurance-system-hurts-us-all

St. Augustine.com
Opinion
April 27, 2011

It’s time for the Florida Legislature to cut back the state’s Citizens Property Insurance Corp. to its original intent. It’s time for Citizens to become the state’s insurer of last resort for coastal homeowners and others who cannot get property insurance in the private market.

We doubt anyone in the Legislature in 2002 expected Citizens to compete with private companies. The goal was to pick up policyholders that private insurers could not or would not insure. But that’s not what we have now. What we have is a situation that if Citizens cannot cover all its claims, it can assess other property insurance customers. That means you and your neighbors.

Gov. Rick Scott promised in his January inaugural address, according to The Associated Press, to work with the Legislature “to eventually eliminate the government-run program’s reliance on assessments following a major disaster and ensure that Citizens consistently operates on actuarially sound rates.”

On Sunday, the Sarasota Herald-Tribune said Scott wants to eliminate Citizens in four years because it is overexposed and underfunded. The newspaper said the information came from documents about a meeting with Scott’s top staff and insurance lobbyists in February. That story caused concern as to where Citizens’ 1.3 million policyholders would go for future insurance.

But Monday, Locke Burt, president of Security First Insurance and a former state senator, said Scott only wants to curtail its growth, not eliminate it. Burt said he met with Scott in March.

In the past five years, state Rep. Bill Proctor, R-St. Augustine, has been saying Citizens needed to go back to what it was, the insurer of last resort. He supports eliminating the assessment on private policyholders to cover Citizens’ claims. Scott’s drum is louder because he is the governor. We hope the Legislature is listening.

The AP story quotes Scott’s spokesman Lane Wright on the issue. “With the position we’re in now, Florida taxpayers would be on the hook for a major storm or hurricane,” said Wright. “That’s not acceptable.”

We agree. The Legislature should begin a phase-out of assessment requirements.

The Legislature is looking at ways to curtail Citizens’ growth. One way, according to the AP story, is to ban Citizens from writing policies on new construction or remodeling of existing homes in environmentally sensitive and high-risk coastal areas. Another is to raise its rates and let the competition with the private sector work that out. That’s good but not enough.

If there is a four-year time period established for reducing Citizens’ policyholders, that should give current Citizens policyholders time to find a new insurer and for new private companies to enter the high-risk market.

Citizens won’t go away because there will always be properties that private companies will not insure. The Legislature should encourage private companies in the high-risk market as there are an estimated 1.3 million policyholders of Citizens today. It’s unfortunate that Citizens’ high-risk policyholders might have to go to the surplus insurance market with its unchecked rates and no state guarantee. But the property owners choose to buy in the high-risk areas. We don’t make that choice and we shouldn’t be expected to pay for their repairs either.

http://staugustine.com/opinions/2011-04-26/our-view-get-citizens-assessment-our-backs

The Miami Herald
by Brent Kallestad
April 25, 2011

TALLAHASSEE — . – Gov. Rick Scott wants lawmakers to produce a bill that would sharply curtail the amount of business that state-backed Citizens Property Insurance Corp. could write, but he isn’t calling for closing the overexposed, underfunded insurer, a leading insurance executive and former state lawmaker said Monday.

Locke Burt, president of the Ormond Beach-based Security First Insurance, said he met with Scott and his staff on March 7. He said the new governor simply wants Citizens as a viable last-resort opportunity that is solvent enough that many of the state’s taxpayers wouldn’t have to make up the difference on potential losses.

“Gov. Scott was elected to reduce the size of government, and I think it’s fair to say he’d like to reduce the size of Citizens quickly,” Burt said. “In my meeting with the governor, we never talked about eliminating (Citizens). We talked about shrinking it.”

The controversy over Citizens stems from a Sarasota Herald Tribune story published Sunday that reported Scott is pushing to eliminate Citizens within four years.

The newspaper reported that in a February meeting with industry lobbyists, Scott’s staff sought to force Citizen customers back into the private market – making many property owners turn to the surplus lines market, where rates are unchecked and policies are not backed by a state guarantee.

Citizens serves 1.3 million Floridians, with more than half of those policyholders in Miami-Dade, Broward, Palm Beach and Pinellas counties.

In his campaign pledge to bring 700,000 new jobs to Florida in seven years, Scott promised to work the Legislature “to eventually eliminate the government-run program’s reliance on assessments following a major disaster and ensure that Citizens consistently operates on actuarially sound rates.”

Florida lawmakers have struggled for years trying to contain Citizens’ growth.

“They realize that it’s deviated from its primary purpose and goal and it’s a potential disaster brewing that they want to deal with quickly,” said Roger Desjadon, chief executive officer of the Boca Raton-based Florida Peninsula Insurance Company. ”I think the governor and much of the Legislature have become painfully aware that Citizens has kind of lost its true north. The original intent was to be a market of last resort, not a market of first resort.“

Florida Peninsula Insurance is one of roughly three-dozen ”start-up“ companies that have entered the property insurance marketplace since the state was ravaged by eight major hurricanes in 2004 and 2005 in hopes of drawing down Citizen’s book of business. But Citizens – a government entity able to assess anyone in the state who carries insurance on a home, business or vehicle – offered far less expensive rates in most cases.

”Citizens is insuring people at a deep discount,“ Desjadon said. ”It changes the market rather dramatically.“

Created by the Legislature in 2002 to provide insurance to homeowners in high-risk areas and those who cannot find coverage in the private market, Citizens now has slightly more than 1.3 million customers. It’s grown by nearly 30 percent in the past three years despite efforts by lawmakers to cut it down in size and reduce the risk to the state and every person in Florida who has insurance on a vehicle, home or business.

”With the position we’re in now, Florida taxpayers would be on the hook for a major storm or hurricane,“ said Lane Wright, the governor’s spokesman. ”That’s not acceptable.“

State Farm spokesman Chris Neal said Monday it would be impossible to eliminate Citizens.
”They have 1.3 million customers,“ Neal said. ”Where would they go?“

None of the legislative proposals moving through committees this session has a blueprint to eliminate Citizens, which reached its zenith in late 2007 with roughly 1.4 million customers. One proposal would prohibit Citizens from selling policies to cover new construction or remodeling of existing homes in environmentally sensitive and high-risk coastal areas.

”We all have the same goal,“ Citizens’ spokeswoman Christine Ashburn said Monday. ”We’d like to see the growth stop.“

Lawmakers now permit Citizens double-digit rate increases to shore up the company’s financial solvency and eliminate some competitive disadvantages for commercial companies. State Farm is the largest private commercial property insurer with roughly a half million customers.

Burt, however, doesn’t believe the legislation for reducing Citizens’ role in the Florida insurance marketplace goes far enough to meet Scott’s goals.

http://www.miamiherald.com/2011/04/25/2185005/gov-scott-looks-to-curb-state.html

The Gainesville Sun
by Don Brown
April 25, 2011

In a April 19, 2001 FoxNews.com article Tampa-Based lawyer Josh Burnett was quoted as saying: “…any time water is pumped out of one area and into another, that can cause the ground in the area where the water originated to be susceptible to a sinkhole…”

I think it is correct to conclude that there is a human behavior component in the number of sinkhole claims being filed. I do believe, however, that higher water use by itself doesn’t begin to explain the magnitude of the problem. It is pretty clear to me that 2005 legislation repealing “Replacement Cost Holdback” has contributed significantly to the sinkhole claims problem.

The truth is Florida’s regulated property insurance rates must include just losses, grossed up for expenses and a small ( 3.5%) profit margin, therefore “cost drivers” are “rate drivers” for consumers.

A careful analysis will reveal that expenses have been largely steady in the past few years with no hurricanes since 2005. What’s interesting is that loss costs (per dollar of premium) have exploded by 80 percent since 2005, when the “holdback” elimination law was enacted, and on current pace would increase another 40 percent by end of 2012.

Rate increases have been common and significant since 2009, directly reflecting the loss explosion. The consequence of these factors are:

1) Rates will continue to rise until loss drivers, such as “holdback” law, are addressed.

2) Citizens will continue to function as a competitor unless the rate cap “glide path” keeps pace with average private market rate increases.

I said all that to say this: The up-front payment of replacement cost is exactly what is funding Private Adjuster involvement, particularly as it relates to the sinkhole peril.

For decades (for that matter, centuries) insurance contracts were based upon the principle of indemnity. That is, after a claim the insured should enjoy exactly the same financial position they enjoyed just prior to the claim.

The payment of replacement cost is a relatively recent departure from that principle.

Unfortunately, to the extent you depart from the principle of indemnity you also create (in direct proportion) moral hazard, i.e., the easier you make it for someone to cheat the more cheaters you will have.

The requirement that an insured repair or replace damaged property is simply a means to control the increase in the moral hazard created by the departure from the principle of indemnity. Once the holdback (and requirement to repair or replace) is eliminated then centuries of experience would predict a significant increase in claims activity.

When it is perfectly legal to claim and be paid large sums for unproveable sinkhole damage and not be required to repair the claimed damage then, in an increasing number of cases, you begin to see an entirely predictable human behavior: make the claim; take the money; pay off the mortgagee or buy a bass boat, and (by the way) pay the PA his fee.

Everyone agrees that sinkhole claims are up dramatically. What exactly is causing this increase is up for considerable debate. Higher water use – maybe. Public Adjuster involvement because of a ready source of cash up front is – in my opinion, a much more likely cause.

Don Brown is a former member of the Florida House of Representative, the Chairman of the Insurance Committee and is currently a Senior Fellow with The Heartland Institute.

http://www.gainesville.com/article/20110425/NEWS/110429709/1109/sports?p=1&tc=pg

Orlando Sentinel
by Mike Thomas
April 25, 2011

A Republican state senator is making a last deserate attempt to make sure people in Orlando continue subsidizing property insurance on the coast.

This comes from Sen. Mike Fasano, who happens to be from New Port Richey.

When last I wrote about Citizens, legislators were working on a bill to allow rates to go up between 15 and 25 percent a year. That is what a lot of policy holders of private insurance have been living through. But somehow, Fasano thinks Citizens customers should be exempt from market forces. And in a major laugher, he actually called the long-overdue rate hike proposals a “tax increase.”

Is this guy serious. The only people getting hit with tax increases are non-Citizens customers who have bail out the carrier after major storms. We got hit in 2004 and again in 2005.

This has to stop. Fasono’s latest excuse to block the rates legislation is that the Sarasota Herald Tribune reported Gov. Rick Scott wants to eventually abolish Citizens.

Well, duh! Of course, he does.

The Herald Tribune then reported that legislators are trying to boot people out of Citizens even though it has the strongest books of any insurer in Florida.

Well, duh again. There’s a reason for that.

This was from today’s St. Petersburg Times:

“About 72 percent of Citizens’ revenue in 2009 came from assessments paid by Floridians through their property, automobile and other types of insurance. The money covers losses incurred during the many hurricanes that hit the state in the past decade. Its policyholder premiums account for only 21 percent of its revenue.”

Of course your books look strong when taxpayers bail you out every time you go bankrupt, paying all your old bills and hiding all that red ink. If Citizens was a private carrier, it would have gone bankrupt long ago. Citizens comes nowhere close to having the finances to pay for a one-in-100 year storm, the standard for insurance companies. That means the bailouts are going to keep on coming. The more people like Fasano supress rates, the worse it will be.

This has been the problem with Citizens from the start. Politicians can not run an insurance company.

This is a joke.

http://blogs.orlandosentinel.com/news_columnist_mikethomas/2011/04/citizens-property-insurance-get-your-hands-off-my-gubberment-insurance.html

SunSentinel.com
by Don Brown
April 24, 2011

You may have read about Florida’s property insurance troubles and wondered where to turn for stability.

Some recent reports have described Citizens Property Insurance Corp., our government-run property insurer, as the “strongest and most profitable” insurer in the state. In fact, though Citizens is a needed consumer safety net, it is no substitute for a vibrant private market with diverse insurance options for Florida homeowners.

A deeper look reveals the shaky assumptions behind some of its stated claims-paying capacity and highlights the need for insurance law reforms that will benefit all Floridians, whether insured by Citizens or not.

The right actions now will signal insurers around the globe to commit new capital to support Florida’s storm exposure — which represents 60 percent of all hurricane risk in the U.S. — and ultimately drive down rates while opening more insurance choices in all parts of the state.

Citizens is “profitable” only because hurricanes have not struck in five seasons — a historically lucky streak according to scientists. It looked pretty profitable before the 2004-2005 storms, too, and all Floridians paid for that illusion with a taxpayer bailout of $715 million in 2006, plus more than $6 billion in assessments on most of your insurance policies from Citizens and its backup fund, the Florida Hurricane Catastrophe Fund.

Citizens insures mostly coastal buildings and collects most of its premium for wind risk, but doesn’t pay it out absent a hurricane. In the next unlucky season, it will be on the hook for far more than its reserves, and could pay out $22 billion or more.

“Profit” as an annual concept is meaningless when the risk is catastrophic hurricanes at unpredictable times.

These reports also assert Citizens’ current “surplus” claims-paying capacity of more than $5 billion is twice that of the combined private market insurers. But unlike Citizens, private insurers fund most of their hurricane risk each year by buying reinsurance (backup contracts) from investors such as Warren Buffett.

In fact, if they didn’t, Florida’s insurance regulators would shut them down. Private insurer reserves are needed only to cover a small retained portion of the risk.

Citizens could use its surplus — but doesn’t — to “buy out” much of its risk this way. Instead, it and state leaders make the conscious choice to borrow billions from Floridians. Citizens sells bonds to Wall Street after storms and pays them off with those assessments. A big storm could result in a bill of hundreds or thousands of dollars for every family, business, and even charitable organization in the state, for up to 30 years.

But as the reports state, at least Citizens can “guarantee” claim payment, right? Not so fast.

Citizens relies on the Cat Fund more than any private insurer, using about 40 percent of the fund’s capacity. The Cat Fund’s own chief notes this fund is not real reinsurance, just a trust fund obligated by law to pay only what it can, and its own promises exceed its reserves by $14 billion or more.

The Cat Fund and Citizens together would beg stressed financial markets for tens of billions after a big storm, and if there is not enough appetite, claims don’t get paid — it’s that simple. Private insurers don’t have to rely on Wall Street — their reinsurers either fully collateralize their contracts, or have the highest financial strength ratings, and quickly cut checks.

Finally, suppose everything goes as planned after the storm for Citizens. What then? Florida would be billions deeper in debt, massive assessments would damage future economic growth, and Citizens’ coffers would be empty.

Hopefully, our private insurers — who for years competed with Citizens’ artificially low rates, responsibly funded and spread their risk around the world, promptly paid their storm claims, and renewed most of their policies — would help us out.

By all means, let’s debate the role of the safety net in Florida property insurance, but use the same yardstick for both the private- and public-sector players. Only then can we find the clarity needed to determine what and where Citizens should insure, how much it should charge, and how it should ensure it can keep its promises.

Don Brown is a former member of the Florida House of Representatives and chaired the Insurance Committee.

http://www.sun-sentinel.com/news/opinion/fl-insurance-oped0424-20110424,0,5847582.story