Don Brown

Sunshine News
by Gray Rohrer
March 12, 2011

Environmentalists and tea party groups don’t usually have much to agree on politically, but they came together in front of the state Senate chambers in Tallahassee Friday to support an insurance reform bill.

Sen. Alan Hays, R-Umatilla, is backing legislation preventing Citizens Property Insurance, Florida’s state-run insurance company, from issuing new policies for construction in environmentally sensitive lands located in high-risk coastal areas susceptible to hurricanes.

“My goal is to depopulate Citizens, to make it as sound as we can make it as rapidly as we can make it,” Hays said.

Environmental groups applauded the bill for its provisions preventing access to artificially low insurance costs for developers who want to build in sensitive coastal and wetland areas.

“For a long time we have been trying to protect Florida’s sandy beaches, which are both economically and ecologically valuable to the state. One fiscally responsible way to do this is to not force Florida taxpayers to subsidize development in the riskiest beachfront areas,” said Gary Appelson, policy coordinator for the Sea Turtle Conservancy.

Private insurers have consistently complained about Citzens’ ability to offer rates that were not actuarially sound. Over time, this meant that some private companies receded from covering high-risk coastal areas, slowly driving homeowners in those areas into Citizens policies.

Now, Citizens has about a $4.5 billion surplus, but potential liabilities totaling around $400 billion. A one-in-100-year storm could result in a $13.7 billion deficit for the company.

“If we think our $4 billion budget deficit is bad, we don’t know what bad is until we see that $13.7 billion deficit,” Hays said.

Hays’ Senate Bill 1714 would allow Citizens to raise rates on residential policyholders by 25 percent, prohibit new policies for construction projects within the Coastal Construction Control Line and disqualify remodeling projects that cost more than 50 percent of the value of the existing structure from Citizens policies.

Tea party groups are also supporting Hays’ bill.

“Government should not be doing what the private sector does,” said Scott Osteen, director of the Tallahassee Tea Party.

Hays said he agrees with Osteen, and believes Florida should not be in the insurance business, but his bill does not eliminate Citizens altogether.

Neither was Hays bothered by the suggestion that his bill could hamper Florida’s economic recovery by slowing growth in coastal areas — a boon to the state’s bread-and-butter industries of construction and tourism.

“We don’t know that the private sector won’t take on those properties,” Hays said.

Despite the support for his bill from a wide range of groups on the ideological spectrum, Hays bragged of the backing of one person whose support may matter most of all — Gov. Rick Scott.

“Governor Rick Scott is in complete agreement with what I’m trying to do,” he said.

http://www.sunshinestatenews.com/story/live-on-water-your-own-insurance-risk

The St. Augustine Record
by Michael Peltier
March 12, 2011

TALLAHASSEE — The state-run insurer of last resort would not cover newly constructed homes in the state’s most hurricane-prone areas under a provision to be introduced next week and backed by a oddly diverse coalition of interests who usually don’t agree.

Sen. Alan Hays, R-Umatilla, said Friday that will propose to prevent Citizens Property Insurance Corp., from offering new policies in coastal and high risk areas of the state.

The provision, which Hays plans to offer as an amendment to another insurance measure he’s sponsoring, would also prohibit the state-backed insurer after June 1, 2012 from providing coverage to owners who remodel existing homes if the fix up increases the value of their home by 50 percent or more.

The provisions would not drop coverage for the 400,000 Citizens policyholders who currently are in the company’s high risk pool for wind or multi-peril coverage.

The underlying bill, makes changes that would reduce the number of coastal residents insured by the state-run pool. Citizens has seen its ranks swell in the past several years as private companies like Allstate, Nationwide and others bail out or dramatically reduce their books of business across the state. Now, with 1.2 million policyholders, Citizens is the largest property insurer in state.

Joining Hays in supporting the proposal are environmentalists, who support slower growth along the coasts.

Hays and other conservatives are pushing the idea because of their opposition to the state taking such a large role in the insurance business, and the peril in which it puts the taxpayers in the event of a large loss for Citizens.

“My goal is to depopulate Citizens, to make it as small as we can make it as rapidly as we can,” Hays said.

Citizens has $400 billion in exposure in coastal regions but has only $4.5 billion in reserves. In the event of a catastrophic storm, Citizens would pay its claims by assessing all property and automobile insurance policyholders, a scenario critics say is patently unfair.

“The Citizens Property Insurance Corp. is a threat to Florida’s fiscal well-being, it’s a threat to residents’ safety and it is a threat to the environment,” said Eli Lehrer of the Heartland Institute, a fiscally conservative organization that wants the state out of the insurance business.

On Friday, Hays was joined at a news conference by representatives of the Florida Wildlife Federation, 1,000 Friends of Florida, the Sea Turtle Conservancy. They stood side by side with representatives of fiscally conservative organizations like Heartland, the James Madison Institute, Americans for Prosperity and the Tallahassee Tea Party that support the measure.

“Some of these areas are some of our state’s most valuable coastal habitats,” said Manley Fuller of Florida Wildlife Federation “We think this bill is a place … where conservation and good economic sense come together.”

Hays plans to add the provision to SB 1714, filed earlier this week, that allows Citizens to increase residential policyholders’ rates by 25 percent on any single policy, excluding coverage changes and surcharges, and restricts who could purchase insurance from the state-backed insurer.

The proposal makes a number of changes to Citizens, including a phase out of Citizens coverage for the most expensive homes, with the state-run insurer by 2016 only covering homes worth less than $500,000. It also would prohibit Citizens policyholders from using public adjusters to file claims.

Officials at Citizens didn’t return a call for comment Friday.

Jack McDermott, spokesman at the Office of Insurance Regulation, said the office supports the underlying bill, but couldn’t comment yet on the proposed amendment.

http://staugustine.com/news/local-news/2011-03-11/bill-would-trim-citizens-beach-coverage

SunSentinel.com
by Julie Patel
March 11, 2011

An unusual alliance of environmentalists, the Tallahassee Tea Party and conservative groups on Friday slammed state-backed Citizens Property Insurance and proposed measures to shrink it.

Citizens, the state-backed insurer of last resort, is Florida’s largest home insurer with more than 1.3 million policies. All property insurance policyholders in Florida are paying fees to pay off Citizens’ deficits from the 2005 hurricane season.

Sen. Alan Hays, R-Umatilla, said if a hurricane that’s predicted to hit once every 100 years strikes Florida, it could leave Citizens with a deficit of $13.7 billion – or more than three times the state’s budget shortfall. “We think we have a bad scene” now, he said. “We don’t know what bad is.”

Hays and groups such as the Florida Wildlife Federation, the Sea Turtle Conservancy, the American Consumer Institute, the Heartland Institute and Americans for Prosperity of Florida gathered at the state Capitol Friday to propose barring Citizens from selling policies for newly built property in environmentally sensitive coastal areas.

Insurers and environmentalists have pushed for years to eliminate government insurance programs such as the National Flood Insurance program and federal catastrophe insurance proposals. They say such programs encourage development in risky areas such as the coast and wildfire-prone regions where people should not be living.

On Friday, environmentalists and others told reporters that Citizens is a threat to the health of private insurers and the environment. “We believe subsidies that promote development in our most flood-prone areas of the coast…is bad policy,” said Manley Fuller, president of the Florida Wildlife Federation.

Hays said he plans to add the environmental protection provision to his bill, SB 1714, which would allow Citizens to raise policyholders’ premiums by up to 25 percent a year and require it to drop policies covering homes that cost $500,000 or more to replace by 2016. It would also bar policies for customers who find coverage from a private insurer that charges up to 25 percent more; bar policyholders from hiring public insurance adjusters; and require Citizens to consider outsourcing more of its work, similar to government insurers in other states, to help reduce its overhead and compensation costs.

http://weblogs.sun-sentinel.com/business/realestate/housekeys/blog/2011/03/tea_party_and_environmentalist.html

SunSentinel.com
by Julie Patel
March 11, 2011

A broad property insurance bill that would allow certain rate increases and change sinkhole coverage options is headed to the Budget Committee Tuesday.

A Senate subcommittee on Friday approved the bill, SB 408, unanimously after making a major change: Instead of allowing insurers to eliminate full sinkhole coverage, it would allow them to charge as much as they want for it. The Senate’s insurance committee approved the bill last month after three meetings and heated debate.

The change would address one of the biggest concerns about the bill: that it would hurt some homeowners with mortgages who are required to have sinkhole coverage. Lawmakers who did not want to propose other changes to the bill in the absence of the bill sponsor, who was at a funeral, said they plan to do so later.

Supporters of the bill, including some insurance industry representatives and legislators, said the bill will reduce skyrocketing costs for claims, some for minor damage and for damage that is never repaired. That could help lower rates, but the legislation does not require the savings to be passed to consumers.

“We think there are a lot of good provisions in this bill,” Monte Stevens, an Office of Insurance Regulation official, told legislators. “There’s no doubt we have a fragile market…Certainly there are reforms that are addressed in this bill that prevent some of the cost drivers.”

Opponents said it would hurt people with legitimate claims. Greg McKinney, a homeowner in Riverview, told legislators that he accepted his insurer’s conclusion in 2007 that he didn’t have a sinkhole, but the damage has worsened to the point that the repairs, based on the insurer’s engineering report, would now cost $210,000. His insurer has denied the claim, he said. “This is devastating to our family,” he said.

John Thompson, a Spring Hill who was dropped by State Farm in recent years, said his neighborhood has a lot of elderly and unemployed people that can’t afford allowing insurers to charge as much as they want for sinkhole coverage. “They claim to be losing money,” he said, yet “they do find the dollars to fund race cars and golf tournaments.”

The committee also removed a provision in the bill to allow insurance company executives to add information to a rate filing that is requested by regulators without having to swear to its truthfulness and accuracy. The Florida Justice Association, which represents attorneys for policyholders, pushed for the change and questioned another provision allowing insurers to added a profit margin on backup coverage costs that are passed through certain automatic rate increases allowed by state law that are capped at 10 percent.

The bill would, among other things:

Allow insurers to withhold a full payment for home insurance claims until policyholders enter into a contract for repairs and repairs are made. The provision wouldn’t apply to homes that are destroyed.

Require homeowners to file or reopen hurricane claims within three years after a storm and file or reopen sinkhole claims within two years of knowing about it, as opposed to the current deadline of five years or more.

Allow insurers to raise rates if they can show they’re losing money on discounts to policyholders who fortify their homes against hurricanes. It would give companies free rein on what they spend for advertising and agent commissions — costs that are sometimes questioned by regulators.

Require homeowners to pay part of the $9,500 average cost of testing for sinkholes if the insurer denies the claim.

Require a policyholder whose sinkhole claim is approved to enter into a contract for repairs within 90 days of approval and make the repairs within a year after entering into the contract.

Allow insurers to change parts of a policy during its term. That’s intended to help insurers avoid dropping policies before they expire. The bill would also reduce how much time policyholders have from the time their insurer warns them that they’ll be non-renewed or dropped to the time they’re dropped.

Insurance is a hot topic today in other parts of the state Capitol building. Sen. Alan Hays, R-Umatilla, will gather with groups such as The Florida Wildlife Federation, The American Consumer Institute, the Sea Turtle Conservancy, and the Tallahassee Tea Party to discuss provisions he plans to add to his bill, SB 1714, to shrink Citizens Property Insurance. The bill would, among other things, allow Citizens to raise policyholders’ premiums by up to 25 percent a year and make many policyholders ineligible for coverage. Hays wants to change the bill to bar Citizens from selling policies for newly built property in risky coastal areas.

Insurance is also on the agenda for a U.S. House subcommittee meeting today. Federal lawmakers are holding the first hearing this year on legislation to extend the National Flood Insurance Program for five years. The program, which was extended last year, will expire Sept. 30.

http://weblogs.sun-sentinel.com/business/realestate/housekeys/blog/2011/03/sweeping_property_insurance_bi_1.html

Tampa Bay Online
by Steve Pociask
March 10, 2011

High coastal exposure to hurricanes is one reason Florida has the highest property-insurance rates in the country. That’s no surprise, but it’s only part of the reason.

Fifteen years ago, Florida’s homeowner insurance premiums averaged 30 percent higher than the U.S. average, but today Floridians are paying nearly 90 percent more, according to data from the National Association of Insurance Commissioners. The disproportionate increase in premiums is not explained by insurer greed or by recent catastrophic events.

Indeed, the average insurer in Florida has lost money over the past decade, despite the fact that there has not been a major hurricane in nearly six years. Why are Floridians paying so much?

Florida is saddled by a host of public policies that were supposedly implemented to protect consumers but actually benefit trial lawyers, insurance frauds, insurance adjustors, risky drivers and millionaires who live on the coast, among other special interests. These policies create extra costs for insurers, who simply pass these costs along to consumers in the form of higher property-insurance premiums. This means that consumers lose.

Sinkholes are a problem, and consumers need protection. But the system is rife with corruption that benefits trial attorneys, claims adjustors and frauds. For example, one claims adjustor has sent out notices promising Melbourne Beach residents “large insurance settlements” if they have cracks in pavements and walls.

Of course, it would be rare to find a home without some settlement cracks in pavements and walls. The process is designed to milk insurers of improper claims, leaving claims adjustors to enrich themselves.

Ironically, there is no requirement that consumers ever make the repairs they are paid for, padding the base for another future claim. While the money seems free, other consumers are on the hook to pay for it.

The system is set up to subsidize coastal properties, but the result increases everyone’s costs as the subsidies lead to more property being put at risk. Adjustors are paid more if they can justify higher property losses, and consumers, when paid, are not required to make a repair. This encourages excessive payments and multiple claims for the same loss. You pay for that, too.

A recent study by the American Consumer Institute found that regulations were a major contributor to high consumer property insurance prices. In particular, the study found that price regulation eventually contributed to higher consumer prices by pushing the most financially stable and well-capitalized insurers out of the market and leaving surplus-starved firms behind.

Those regulations have led to a greater need to raise prices and a greater incidence of insolvencies — exactly what regulation is supposed to prevent. This means that consumers will pay more but get less.

Politicians and regulators defend these provisions as being in the consumers’ interest. In reality, Florida consumers are paying disproportionately higher property insurance premiums in order to benefit political special-interest groups and fraud. It’s just a big consumer scam, and it needs to stop.

Steve Pociask is president of the American Consumer Institute Center for Citizen Research in Tallahassee.

http://www2.tbo.com/content/2011/mar/10/MEOPINO2-a-scam-against-florida-consumers-that-mus/news-opinion-commentary/

SunSentinal.com
by Julie Patel
March 10, 2011

State insurance fraud investigators arrested a public insurance adjuster Wednesday in connection with an allegedly fraudulent claim on behalf of a golf course in Miami.

Erasmo Zorilla was hired by the owners of Country Club of Miami to reopen a Hurricane Wilma claim. He told North Pointe Casualty Insurance, the club’s insurer, that the tiles on the club’s roofs are not available anymore so the roofs would have to be replaced at a cost of $2.4 million.

But investigators said the folks for the tile distributor said no one had ever shown them a sample from that location and the original supplier said the tiles are readily available. “Zorilla stated he conducted his inspection by standing outside of his car and looking up at some of the buildings and seeing some tile damage,” Chief Financial Officer Jeff Atwater’s office wrote in a statement Thursday.

Brian Macomber, an owner of Five Star Public Adjusting, where Zorilla is a contractor, declined to comment on the specifics of Zorilla’s case but said he’s confident the charges will be dismissed.

He added the arrest, made as the state’s legislative session kicks off, may be used to encourage support for legislation restricting public adjusters, who are hired by policyholders in claims disputes with insurers. “Public adjusters have been painted with a criminal brush and accused of fraud. The past few anti-consumer bills are going to devastate policyholders,” he said. On Friday, Macomber said Five Star has suspended Zorilla and “fully supports the efforts of Mr. Atwater to root out any fraudulent or unethical activity that may exist in the adjusting industry.”

Atwater said the arrest is “yet another example of the unscrupulous insurance fraud schemes pulling money out of the pockets of Floridians and reputable businesses.”

Zorilla, who surrendered to state detectives, is charged with grand theft in the first degree and insurance fraud in the first degree, and is being held at the Dade County Jail on $20,000 bail, according to Atwater’s office.

Earlier this month, Atwater’s office announced that a public adjuster in North Miami Beach plead guilty to first-degree fraud for pocketing more than $360,000 from 82 clients and using the money to pay personal debts.

Consumers can report suspected insurance fraud at www.MyFloridaCFO.com or 800-378-0445.

http://weblogs.sun-sentinel.com/business/realestate/housekeys/blog/2011/03/miami_public_adjuster_arrested.html

Jackson County Floridan
March 6, 2011
By Morgan Carlson

Former Florida representative Don Brown spoke at the Jackson County Chamber of Commerce First Friday Breakfast this week. Brown is an insurance expert and is serving on Gov. Rick Scott’s transition team on insurance reform.

Brown said the Florida insurance market is at a crossroads.

The “stubborn human behavior” of building in dangerous places, and expecting others to pick up the tab, has lead to the current insurance problems in Florida, Brown said.

Florida has $2.5 trillion in coastal property insured,
which represent 79 percent of the exposure in the entire state. This is an out-of-balance risk portfolio, Brown said.

Florida has more coastal property insured than all the other Gulf Coast states combined. Florida also insures more than 50 percent of the nation’s wind risk, Brown said.

The biggest problems in the state aren’t natural disasters, Brown said. They are the man-made disasters, namely Florida House Bill 1A approved by former Gov. Charlie Crist in 2007.

Brown was one of two legislators to vote against the bill, which significantly expanded the role of government into the private market, specifically the insurance market.

Brown said the reforms of 2007 are not working. As a result, five insurance companies in Florida have gone bankrupt since the reforms were implemented. Brown said it’s possible things will change this year under the new administration.

Florida needs to try something different, but not overreact, Brown said, stating Florida needs to make incremental progress to reduce liability.

http://www2.jcfloridan.com/news/2011/mar/06/brown-talks-insurance-first-friday-ar-1542719/

St. Petersburg Times
Letter to the Editor
March 2, 2011

You would think with the absence of a major hurricane catastrophe for the past five years, insurance companies would be able to build surpluses for claims. Not the case.

Sinkhole claims have unexpectedly and mysteriously quadrupled over this period. In Hernando County, one private insurer reported sinkhole premium income of about $133,000 and sinkhole claims of more than $2.3 million. That means for each dollar of sinkhole premiums collected, $17 was paid out in claims. “Hurricane Sinkhole” is a Category 5 disaster, and we have to address it.

Many claims are prompted by unscrupulous adjusters and policyholders looking for cash payments. Huge insurance payments, if not used to repair damages, result in a significant decline in property values.

The Florida Senate is addressing the crisis. SB 408 is a collaborative effort among regulators, insurers and consumer advocates. It will strengthen the marketplace by requiring insurers to maintain higher levels of capital. It closes loopholes that invite fraudulent claims by restricting misleading advertising and misleading solicitations. It attacks rising costs by permitting insurers to initially pay actual cash value on claims, and as repairs are made, pay the full replacement cash value.

Florida needs an insurance industry that is solvent and on which policyholders can rely. Our state needs to attract capital to increase the number of insurers so we can get out of the state-owned insurance business. SB 408 is intended to promote these objectives. It will strengthen the market, responsibly address the factors driving up costs, and close loopholes that promote fraud.

State Sen. Garrett Richter, District 37, Naples

http://www.tampabay.com/opinion/letters/wednesdays-letters-senate-bill-strengthens-insurance-market/1154596

LTE – The Wall Street Journal
by Citizens Chairman James Malone
February 28, 2011

As chairman of the Citizens Property Insurance Corp. board of governors, I applaud The Wall Street Journal for highlighting the urgency for reforming Florida’s property-insurance market (“Waiting for Hurricane Charlie (Crist),” Review & Outlook, Feb. 23).

A healthy and profitable property insurance market is essential to the future of Florida’s economy and Citizens Property Insurance Corp. wants to be a part of that solution. A healthy insurance market will have to ultimately be the result of private-market capital and private-market policies—not government solutions.

The size and exposure of Citizens is a direct reflection of the health (or lack thereof) of the private market. Citizens was created as the insurer of last resort, and it should once again function as the market of last resort. As chairman, I fully support initiatives aimed at making Citizens noncompetitive with the private market.

The sooner we get back to a healthy private market, the better. None of us knows when the next “big one” will hit Florida. The time to reform the Florida market is now.

James Malone
Chairman
Citizens Property Insurance Corp.
Tallahassee, Fla.

http://online.wsj.com/article/SB10001424052748703842004576163054205180380.html

The Wall Street Journal
February 27, 2011
By Erik Holm

NEW YORK (Dow Jones)–A hurricane-modeling company that helps insurers predict the cost of mega-storms will launch a new, more-sophisticated model on Monday that shows some homeowners living hundreds of miles from the nearest ocean are at greater risk than previously thought.

While the homes closest to the coast are clearly the most likely to suffer serious damage, the model from Risk Management Solutions Inc. increases the estimates for how much harm a hurricane can do in the hours after it blows ashore and begins moving inland.

The revisions could cause insurers to think twice about the areas where they operate and re-evaluate what they’ve chosen to insure.

The updated model is expected to double RMS’s 1-in-100 year estimate for insured hurricane losses in Texas, and increase estimates in the mid-Atlantic by more than 75%. Nationwide, the 1-in-100 year loss estimate will increase by 15% to 25%.

Importantly, the figures estimate the entire insurance industry’s losses. Some insurers will fall above or below the typical range, depending on their areas of geographic focus. Some, in fact, will see their loss estimates go down.

The 1-in-100 year measurement is commonly used in the industry to evaluate an insurer’s hurricane risk, putting a ceiling on storm claims that has just a 1% chance of being exceeded each year.

Advances in the tools that measure hurricanes over the past several years combined with ever-improving computing power and more information on actual losses from past events to give RMS 10 times more wind data than the last time its so-called hazard model was updated in 2003.

“We’ve really got a much more informed view because of all the hurricanes that have been happening in the past several years,” said Claire Souch, vice president of natural catastrophe at RMS.

The new model includes a better understanding of what fuels a hurricane in the warm waters of the Atlantic or Gulf of Mexico, and what causes a hurricane to lose intensity over land.

“Different hurricane degrade over land at very different rates, and that’s what we have more insight into now,” Souch said. “There are more factors that go into it than we’d previously been able to capture.”

The factors include the size of the hurricane and how much of it is still over the water, how fast it is moving, and whether a storm is strengthening or weakening just before landfall. Terrain also plays a role; a storm will be torn apart by mountains, but will be able to gather fuel from swampy areas like the Everglades in hurricane-prone Florida.

The model also accounts for the spike in the cost of construction materials after a storm and updates assumptions about the damage that even a moderate hurricane can do to commercial buildings in some regions to reflect the strictness of local building codes–and how well those codes are enforced.

Hurricane Ike, a Category 2 storm that struck the coast of Texas in 2008, illustrates why RMS needed to update its model. While homeowners living closest to the shore took the brunt of the damage, Ike didn’t lose steam quickly as it marched north toward Oklahoma. It wasn’t downgraded from a hurricane to a tropical storm until it reached Palestine, Texas, almost 200 miles inland.

How quickly insurers increase prices on home insurance if the new model shows a jump in their loss estimates is an open question. State regulators have some control over rates, and competition for customers may cause companies to forgo a rate increase. Most companies combine RMS’s analysis with other models, which would further limit the impact of the increase.

“The more qualified opinions you can factor into the equation, the more accurate you are likely to be,” Dick Luedke, a spokesman for State Farm Mutual Automobile Insurance Co., the largest home insurer in the U.S., said in January, commenting on the pending new hurricane-cost model. Whatever the results from RMS, he said, State Farm will weigh them against the other models.

Notably, a typical home-insurance policy covers far more than hurricane risk, so the potential added cost for the typical homeowner would be significantly less than the percentage increase for a 1-in-100 year loss in his or her neighborhood.

http://online.wsj.com/article/BT-CO-20110227-702268.html