Don Brown

NaplesNews.com
by Laura Layden
July 13, 2011

Florida’s “insurer of last resort” may soon go private.

Jim Malone, CEO of the state-run Citizens Property Insurance, floated the idea at a regular board meeting on Wednesday. It would take political will – and if it happened it could take nearly a year to do.

Malone, a Naples entrepreneur, has proposed the idea as a way to reduce the state’s financial risk, which continues to grow as the government-backed insurer adds more policy holders by the week.

“It just continues to worry me to death that here we sit with lower than market rates and with growth that just continues to increase our exposure,” he said in a phone interview after the board meeting.

He said Citizens is growing at “a rate of 4,000 to 5,000 people a week.” Statewide, Citizens has nearly 1.4 million policies.

“No other state has the number of policies or the exposure to loss like Florida. They don’t even come close,” said Lynne McChristian, a spokeswoman for the Insurance Information Institute.

Citizens Property Insurance has half of the total policies of all state-run insurers and it has 70 percent of the risk based on the value of insured real estate, she said.

As of June 30, there were 58,760 Citizens policies in Lee County – up from 50,821 a year ago. There were another 24,316 policies in Collier at the end of last month, up from 21,211 in June 2010.

“What has happened over the years through legislative action or inaction, depending on your point of view, Citizens has become the largest insurer in the state,” Malone said. “We are the third largest underwriter of property insurance in the country, but all of our risk is concentrated in the state of Florida.”

Gov. Rick Scott quickly embraced Malone’s idea. If privatization would help drive down the cost of insurance, he said, “I want to look at it very closely.”

Not everyone was so welcoming of the idea.

Joe Volturno, a 79-year-old retiree who lives in eastern Collier County, said he fears privatization will only increase his premiums as a Citizens policy holder.

“I don’t know why the premiums keep going up every year,” he said.

He lives in a manufactured home in Blue Skys off Radio Road and he was unable to find insurance anywhere else. His yearly premium is now $1,800 a year.

Richard A. Ferreira, a former city councilman in Bonita Springs, also has a Citizens policy for his manufactured home in Spring Creek Village and doesn’t support privatization. “They are doing that because they want open competition, so that prices can be raised far beyond what the middle-class can afford,” he said.

Ferreira was forced into Citizens when he had to replace his manufactured home after it was destroyed by Hurricane Charley in 2004. He was denied insurance by all the major carriers including State Farm.

He’s unsure whether he’ll be able to keep his policy with Citizens if the insurer is privatized.

The idea still needs legal and financial study. The state insurer could possibly become publicly traded, Malone said.

“That way people from different parts of the country could own or invest in it,” he said.

Privatization would enable Citizens to have more competitive rates, Malone said.

“This is by no means an easy or sure solution, but it is one that I think needs to be explored,” he said.

He expected opposition.

“People that have a vested interest in the status quo will naturally oppose anything that threatens their well being,” Malone said. “I think there will be some legislative opposition to it.”

At least one key legislator, Sen. Garrett Richter, R-Naples, is showing his initial support for the idea. He’s the chairman of the Senate Banking and Insurance Committee.

“I have tremendous respect for Jim Malone’s intellect and his business acumen,” he said.

Malone is the founding managing partner of Naples-based Qorval LLC, an investment banking, financial advisory and turn-around firm.

Other efforts to make Citizens truly the insurer of last resort haven’t worked, Richter said. “So I would have an open mind as we proceed with a bonafide discussion about whether to or whether not to privatize Citizens.”

He described the effort as “at the starting line.”

“It is important that we do whatever we can to attract more underwriters in the state of Florida in an effort to responsibly reduce premiums,” Richter said.

Tim Shaw, CEO of Tim Shaw Insurance Group Inc. in Fort Myers and Naples, said privatization is a good idea for several reasons.

He pointed out that all homeowners who are insured by Citizens have the fear of a big assessment if there’s not enough money to cover a bad hurricane season. They can be assessed up to 45 percent of their premium, he said.

“The people in the regular market are not going to be subject to that assessment, unless the losses get real bad,” Shaw said.

When the losses are “real bad,” every insurance policy holder in Florida has to pay for Citizens’ losses, he said.

Every policy holder in Florida is still paying the cost of damages from hurricanes in 2005 as a result of Citizens’ losses.

“We’ve got five more years to pay off the last big storm we had,” said McChristian, with the Insurance Information Institute.

Citizens should not have policies for homeowners who don’t live on the coast. That’s not what it was designed for, Shaw said.

In 2002, the Legislature created Citizens to provide insurance to homeowners in high-risk areas and those who couldn’t find coverage in the private market. It was largely an offshoot of an underwriting association formed by the state in the aftermath of Hurricane Andrew, which devastated South Florida in August 1992.

Shaw admitted it can be tough, if not impossible, for owners of manufactured homes to find insurance from private companies.

Naturally, employees of Citizens won’t like the idea of privatization, Shaw said.

“Jobs could be at risk,” he said.

http://www.naplesnews.com/news/2011/jul/13/growing-problem-citizens-property-insurance-ceo-su/

The Insurance Journal
by Michael Adams
June 23, 2011

For those in the industry, Florida’s recent legislative session was a long march as they tried to navigate through a process that initially promised much in the form of a new governor and strong pro-business majorities in both the House and Senate. Armed with an agenda that included property reform, tort reform and a high-profile push to overhaul the state’s no-fault auto law, the industry set the bar high.

But while lawmakers did accomplish some major reforms, especially in the area of private property reform, on the other side of the equation they failed to tackle the state-backed Citizens Property Insurance Corp. As the session came to a close, for many in the industry there was a sense that lawmakers had fallen short, and the results were incomplete at best.

Florida Association of Insurance Agents President Jeff Grady is no stranger to the legislative process having spent more than a decade watching elected officials come and go and the industry’s fortunes rise and fall. Now since the legislature finished its business in Tallahasse, he has had time to look back and assess what was and was not accomplished and what that may mean for the industry. in late May, Grady took some time out to speak with the Insurance Journal to offer some of his views on the session and the path ahead.

What is your overall assessment of the legislative session?

Grady: The property industry really can see it no other way than being a success. The main property bill had been vetoed twice before finally making it across the finish line, and that is progress. What obviously didn’t happen is the other half of that which is reforming Citizens Property Insurance, and that is disappointing. But those are very big issues, and those who have been around the process know it’s pretty unlikely you can get all of that at one time.

There were other issues — no-fault reform, tort reform — but there is only so much lawmakers can do in a 60-day session, and when they are working on property full time, there’s not much time to look at other issues.

How do you view the property reforms and do you think they will bring more companies to Florida?

Grady: It was more of a recitation bill for existing carriers. You would have to get the Citizens’ situation solved before you could talk about any meaningful capital reformation in Florida. Right now, Citizens is growing rapidly. In the last week seven carriers have shut down because of concerns over reinsurance because of new catastrophic modeling. So the disparity between the private market versus the government-backed insurer is just going to continue to grow.

The carriers in Florida desperately needed the property bill to address the sinkhole fraud, but nothing about that is a lure to capital when companies looking to come in the state know they are going to have to compete against this super company with heavily subsidized rates.

What impact will the property bill and the failure to reform Citizens have on agents?

Grady: Because Citizens is competitive and attracting agents and some agents like with State Farm have no market, Citizens is growing in some cases due to the population of its agents. Other agents are trying not to send business to Citizens, but they have to compete against those other agents who are using the insurer’s low rates as a tool.

This past week, I visited some agents who have markets and they are telling me they are trying to avoid sending business to Citizens, but when there is a concern over rates they know that is where the business is headed.

You mention that reinsurance is a growing concern, especially with the revised catastrophe model 11 developed by Risk Management Services (RMS). What are you seeing in the market?

Grady: One company sent a message to its agents stating the problems in the state include premium losses and sinkhole losses, but they went on to say that the recent changes in hurricane models have had a significant impact on their rate adequacy. The new hurricane models have increased expected hurricane losses in some territories by high-double digits, and in some cases triple-digits and this is an overnight change.

Now, the Florida Hurricane Modeling Commission has not approved the use of the new RMS model, but that is not necessarily the way the world revolves. [Editor’s note: Since this interview, the Florida commission has approved the RMS model.] Rating agencies are dictating part of this, too. I think there are carriers right now over in Bermuda, over in London, shopping for reinsurance and those prices are indicating the use of that model, and what it cost now to cover that same book of business, is 50 percent higher. So I think a lot of companies are in a wait-and-see mode. But there is no doubt that this is having an immediate impact and carriers are shutting down because of it.

There was a big push to reform the state’s personal injury protection auto insurance. But even with the backing of consumer groups, state officials, and the industry, it fell short. Why?

Grady: I think PIP failed in part because it is an extremely large trough that a lot of interests feed off of. You also had a lot of carriers making property their priority and their attention was diverted from the auto market. And the folks on the other side of PIP reform, they fight hard. I don’t think it had anything to do with merit of the issue; you had regulators supporting it and a lot of statistics that were hard to debate against. But it came down to priorities, the strength of the issue and a feeling that will get them next time.

Was there anything agents did get out of the session that wasn’t necessarily high-profile?

Grady: We got several things that were below the radar. Acquisition costs are no longer directly or indirectly approved by the Office of Insurance Regulation. When rates were moving back up after the hurricane years, regulators were telling carriers to moderate rate increases by lowering agents’ commissions. I don’t know if that if that is necessarily right or wrong, but what I do know is we believe it should be up to a carrier how they acquire a policy, whether it is through direct advertising or uses agents. The price of that is ultimately decided in the market, and we don’t believe regulators should be allowed to tell companies what they can be paid, and that was addressed in the property bill.

There were two things about Citizens that did get done and one is a notice on policies informing clients of the possibility of deficit assessments and they will be higher than in the private market. That was coupled with a provision that Citizens’ assessments would follow consumers whether they stay in Citizens, and that is a big change. Before Citizens’ policyholders could avoid assessments by switching to a private company, and that no longer can take place. Hopefully, that will remove some of the tools that Citizens has that allows it to compete out in the marketplace.

http://www.insurancejournal.com/news/southeast/2011/06/23/203733.htm

FoxBusiness.com
by Susan Ladika
June 23, 2011

The threat of hurricane damage has pushed home insurance rates sky high for many coastal residents. But inland homeowners soon may be paying more, too, thanks to an updated model some insurance companies use to help set insurance rates.

The revised model by Risk Management Solutions (RMS) has found that risk from wind damage in some coastal locations is lower than expected, but is higher than expected in some inland areas.

Reams of new wind speed measurements indicate that hurricanes don’t fall apart over land as much as previously believed, meaning they can inflict more damage on inland areas.

This is the first major overhaul to the RMS model since 2003. The new model includes information collected during Hurricane Katrina, which wracked the Gulf Coast in 2005, and the endless parade of hurricanes that hit Florida in 2004.

“The information for the most recent storms dwarfs the data” collected in previous hurricanes, says Ryan Ogaard, senior vice president of RMS.

Homeowners insurance companies use the data to help prove to states that they have enough capital to pay insurance claims in the event a hurricane pummels a state, he says.

The new model in a bellwether state
Florida rigorously checks hurricanes models and is seen as a bellwether for other coastal states when it comes to homeowners insurance and hurricanes.

The Florida Commission on Hurricane Loss Projection reviews and approves models so insurers can use them when determining rates. In June, the commission gave the green light to the new RMS model.

Under the new model, risk from wind damage in the coastal Miami area is lower than previously expected, while in the Orlando area the risk is higher than previously believed.

When a hurricane strikes, Orlando might experience winds that are 10 mph greater than previously expected. That doesn’t sound like much, “but 10 mph can actually make a fair amount of difference” when it comes to the amount of damage a home sustains, Ogaard says.

The year a home was built and the type of construction used also play key roles in how likely it is to sustain storm damage, according to the RMS model. Florida adopted extremely tough building codes after Hurricane Andrew walloped the state in 1992. Homes built in the wake of the new codes are constructed to much higher hurricane-resistance standards.

In contrast, “Texas building codes are not as robust,” Ogaard says.

How the model impacts insurance rates
Homeowners insurance companies say it’s too early to predict the new model’s impact on insurance rates. Nationwide uses the RMS model, along with other models, to examine thousands of scenarios, such as a potential storm’s path and its intensity.

The company also looks at historical trends to set future rates, says Nationwide spokeswoman Elizabeth Stelzer, adding, “I can’t begin to speculate on its potential impact on rates.”

Stephanie Siewert, vice president of sales and marketing at Prepared Insurance Co. in Tampa, Fla., says the revised model’s impact on rates should become clear this fall and into 2012.

The new model’s impact on rates may vary even within a state’s own borders.

For example, different areas of Florida could see big differences, Ogaard says. Companies that primarily offer coverage in inland areas could push for steep homeowners insurance rate increases. On the other hand, insurers that cover homes in widespread parts of the state may be less likely to seek big rate increases.

While the RMS model is widely used, it’s not the first one approved by the state that predicts greater inland damage inflicted by a hurricane, says Jack Nicholson, chief operating officer of the Florida Hurricane Catastrophe Fund and a member of the Florida Commission on Hurricane Loss Projection.

The cost of reinsurance also impacts homeowners insurance rates.

“To the extent the models require a company to purchase more or less reinsurance, it could have an impact on rates,” Nicholson says.

How to protect yourself
Homeowners worried about rising insurance costs can take steps that both protect their home and possibly lower their rates.

Wind is the primary source of damage during a hurricane, so it’s important to keep roofs, windows, doors and garage doors in place. If a roof is torn off, it also will allow rain to pour in.

There are several measures homeowners can take to combat this, such as using construction-grade adhesives to help hold roofs in place or reinforcing the gable ends of the roof.

Another low-cost alternative, Siewert says, is installing hurricane shutters to protect windows.

The Institute for Business & Home Safety, which is funded by insurance and reinsurance companies, has detailed information on its website about what homeowners can do to fortify their existing homes and be best prepared if a hurricane strikes.

Homes retrofitted to the IBHS’s fortified building standards that have passed the organization’s inspection are eligible to receive wind mitigation credits on the wind and hail premium portion of property insurance policies.

http://www.foxbusiness.com/personal-finance/2011/06/22/will-new-hurricane-model-raise-your-insurance-rates/#ixzz1Q04m0cW7

The Tampa Tribune
by Brian Thomas
June 20, 2011

People judge risk badly. We worry too much about minor hazards and are nonchalant about more serious ones. We’re especially inept at judging chronic long-term risks — like climate change.

Insurance is a major part of how we deal with risk. Can it lead us to more viable ways to address climate issues? The picture is mixed.

When we manage risk by buying insurance, we endure the slow, small pain of insurance premiums in exchange for a big compensation should something ugly happen. The insurers profit from our lack of knowledge about risk. Buying insurance goes against the grain, but paying our premiums gives us a little more security against fires, earthquakes, business interruption and the numerous other events against which we can buy an insurance product.

The optimistic point of view is that insurance can play a major role in guiding businesses and individuals toward more climate-friendly decisions. In theory, insurers study the real probabilities of known hazards, figure out a viable premium that gives themselves a profit and the policyholders the agreed-upon protection against the risk. When climate change raises the risks of flooding, business interruption and other insurance hazards, the premiums go up, which can lead their policyholders to change their behavior. Financing for a new factory can be prohibitive or even impossible to get, if insurers won’t cover it.

In practice, though, this theory is faulty for several reasons. Climate change poses special challenges to insurers, not merely because they are on the hook for many weather risks such as hurricanes.

First, to single out one kind of insurance, many factors combine in extreme weather events. A hurricane has many causes, and global warming might only be 2 percent of the overall risk. If that part grows from 2 percent to 5 percent, it seems negligible but in fact it’s quite significant. As one insurance executive said, “Even a minor increase in a risk like that can mean billions of dollars in additional losses to insurers.”

If climate change is turning up the dial, these familiar events may break out of their boundaries and become more frequent, more intense or changed in unexpected ways.

Second, insurers are people too, and the cognitive blind spots that afflict individuals also affect the risk business. In practice, the insurance industry’s grip on certain probabilities often relies on seat-of-the-pants methods that are subjective and whose overoptimistic assumptions are sometimes rudely corrected by ugly surprises, especially when risks are constantly changing, as they are with climate change.

Third, insurance functions well when the risks of various hazards are truly independent of each other, and truly random. One trouble with climate change is that climate instability tends to make floods, windstorms and other extreme weather more interrelated.

One force binding all these factors together more tightly is land use. Consider Florida, where the laws, business practices and general culture are geared to developing every square inch of land near water — oceans, certainly, but also lakes, streams, wetlands. Even in the absence of climate change, this is an obviously dangerous policy. Rather than resisting, many property and casualty insurers have pulled away from vulnerable coastal property in Florida. In response, Florida created its own public insurance pool. Result? Development continues, and the state fund is actuarially unsound. A few more storms would bankrupt the state, which would then call on the federal government — as the stand-in for taxpayers in all other states — to bail them out.

These three factors mean the insurance industry is weaker than it appears in matters of changing social and economic policies. The only way to change these entrenched policies would be for other social forces to align with the insurance point of view. That will require energetic political leadership and vigorous regulation. The market alone cannot save us.

Brian Thomas is a sustainability consultant with a focus on communications. He is currently a member of the New York City Panel on Climate Change.

http://duke1.tbo.com/content/2011/jun/20/MEOPINO2-can-insurers-view-save-us-from-climate-ch/news-opinion-commentary/

Sunshine State News
by Gray Rohrer
June 17, 2011

Florida homeowners covered by Citizens Property Insurance could face higher premiums in the form of emergency assessments if a powerful storm strikes the state, company officials explained Thursday.

Officials from Citizens, the state-run property insurer, gave the Florida Cabinet an update of the company’s finances, outlining how prepared they are for the hurricane season, which began June 1. They also explained that, while Citizens has sufficient reserves for a smaller storm, it couldn’t cover the likely losses from a Hurricane Katrina or Hurricane Andrew-type storm.

Citizens currently services 1.36 million policies throughout Florida, and has a surplus of $5.7 billion. It can also tap into nearly $3 billion in bonds and $5.6 billion in reinsurance if necessary. Throw in Florida’s catastrophe trust fund, and Citizens can pay out damages for nearly $15 billion.

But a one-in-50-year event, the equivalent of a Hurricane Andrew, which struck South Florida as a Category 4 storm in 1992, would exhaust those reserves, resulting in regular, one-year assessments for its customers, as well as emergency assessments that could last up to 10 years or more.

Agriculture Commissioner Adam Putnam suggested that the greater threat to Florida — and Citizens’ customers — isn’t one massive storm, but multiple storms hitting the peninsula over the course of hurricane season, which stretches from June through November. Citizens officials agreed.

“In a scenario where you have three storms in over a year, you might have regular assessments,” said Susanne Murphy, chief administration officer for Citizens.

The scenario has already happened, as Citizens are paying a 1 percent emergency assessment over the damages incurred by several storms in 2004 and 2005. The charge will remain in place until 2017.

Gov. Rick Scott seemed particularly interested in the status of Citizens, asserting the need to get the private market to return to Florida. Many insurers left after Hurricane Andrew, and more have defaulted in recent years as a result of the downturn in the economy.

“It’s not the insurance company of last resort like it was meant to be,” Scott said.

State statutes allow Citizens to charge rates unrelated to actuarial tables, unlike private insurers. Combined with a three-year rate freeze imposed by former Gov. Charlie Crist in the aftermath of the 2004 and 2005 storms, the rates have been tilted in Citizens’ favor and homeowners have flocked to the state-run insurer.

Now Citizens’ rate hikes are limited to 10 percent each year, but are still not connected to actuarial tables, as private insurers are required to do. Scott recently signed SB 408, which allows private insurers to raise rates 15 percent to recoup the cost of reinsurance. But that may not be enough to level the playing field with Citizens.

The new law also imposes new regulations on sinkhole coverage, attempting to tackle sharp increases in sinkhole claims that have driven up rates despite a lack of major storms in the past five years. From 2002 to 2010, Florida insurers took in $272 million in sinkhole premiums, but paid out $878 million in claims. It may take several years, however, for the law to have an impact on the market.

“It’s going to take a couple of years for the loss experience to cause changes in the market,” said Christine Ashburn, director of legislative and external affairs for Citizens.

Reach Gray Rohrer at grohrer@sunshinestatenews.com or at (850) 727-0859.

http://www.sunshinestatenews.com/story/large-hurricane-could-hit-premiums-state-insurer-says

Insurance Journal
by Michael Adams
June 17, 2011

Two weeks into a new hurricane season, Florida officials are continuing to express their concerns over possible policyholder assessments by Citizens Property Insurance despite the relative financial strength of the state’s government-run homeowners’ insurer.

Given the insurer’s current financial resources, it could weather up a to a one-in-50 year hurricane, or $15 billion in losses, before it would have to levy any policyholder assessments, Citizens’ Chief Administrative Officer Susanna Murphy said in a report to the Florida Cabinet, which includes Governor Rick Scott and Chief Financial Officer Jeff Atwater.

The $15 billion figure is based on the insurer’s projected year-end surplus of $5.7 billion, $2.9 billion in pre-event bonds, and $6.6 billion in reimbursements from the Florida Hurricane Catastrophe Fund, and $575 million in private reinsurance purchased in May. Once the $15 billion plateau is breached, the insurer would have to issue bonds backed by policyholder assessments to raise money to pay claims.

Citizens’ policyholders would be the first called upon to fund any deficits. Citizens is divided into three accounts: a coastal account that provides wind-only coverage to residents along the state’s coast, a personal lines account made-up of standard homeowners’ policies, and a commercial lines account which consists of large condominium associations.

If a deficit occurred in any of three accounts, the policyholders in that account would face a 15 percent surcharge. In the event of a deficit in all three accounts, Citizens’ policyholders could see an overall surcharge of 45 percent of their premiums.

“This follows the state’s directive that Citizens policyholders should bear more of the burden of the operations of Citizens since they are the beneficiaries of those operations,” Murphy said.

If the Citizens’ surcharges alone are not adequate to pay off the deficit, the insurer could levy a six percent regular assessment on private insurers, the cost of which would be passed through to policyholders. Lastly, the insurer could levy an emergency assessment on both Citizens and non-Citizens of up to 10 percent annually over the life of the debt. Murphy said if the insurer used all the resources at its disposal, it could raise some $24.5 billion.

Left unsaid, however, is that in the event of a storm of that magnitude, in addition to potential Citizens assessments, policyholders would likely face assessments from the state’s Hurricane Catastrophe Fund. The Cat Fund is projected to have $7.25 billion in cash, but would need to raise some $11 billion to reach its statutory claims-paying obligation of $18.5 billion. Under that scenario, all state homeowners would face a 3.54 percent annual assessment for 30 years. And that is assuming that there is enough capacity in the market to support two multi-billion bond offerings, each representing one of the largest public debt offerings in the country.

Gov. Scott noted that while the assessment process seems sound, it depends on the willingness of policyholders to pay assessments that could extend out decades. “After Katarina, a lot of people just left their home and property,” he said.

But Murphy said the insurer has had a 99 percent collection rate for previous assessments including a current one percent emergency assessment that is being used to pay-off bonds issued in 2007. The assessment is expected to continue through 2017.

Department of Agriculture and Consumer Services Commissioner Adam Putnam cautioned that while the numbers may look good when focused on losses from a single hurricane, they don’t take into account the higher probability of multiple storm seasons. “Forget about the Hurricane Andrews and Katarinas, we have a track record in this decade of multiple small and medium sized storms,” he said.

Atwater agreed that multiple storm seasons are the most likely scenario. That’s all the more reason, he said, that policyholders need to be educated about the assessments they could face, especially since they are benefiting from rates that in many cases are lower than the private market. “There may be some kind of comfort in receiving a lower cost right now,” he said. “But its Vegas, everyone hopes we will get by this year.”

As part of a reform bill passed by lawmakers this year, Citizens applications will now contain a disclosure document statement that must be signed by the policyholder, one which spells-out the various surcharges and assessments they could face. Murphy said Citizens is working on a draft of the document.

Growth Continues

Meanwhile, while the insurer continues to earn premiums, it is also continuing to grow. In April alone, the insurer added 40,000 new policyholders to its rolls. However, contrary to some public perception, most of those policyholders are not being added to the insurers’ coastal account.

Looking over a 10-year trend line, the number of coastal policies has remained fairly flat at around 450,000 policies. The growth has come in inland areas, especially in those areas of the state where the private market has stopped providing coverage due to sinkhole losses. Citizens collected some $19 million in sinkhole premiums in 2009, which was dwarfed by the $85 million it paid out in sinkhole claims. Atwater said he was hoping that this year’s property bill, which targeted sinkhole costs, will help reverse those losses.

Murphy made clear, however, that even if the state’s private homeowners’ market could be revived, Citizens would likely remain in business. She said it would still need to provide wind-only coverage in coastal areas. In addition, the insurer provides coverage to some 185,000 mobile homeowners whose residences are more than 25-years old. The insurer also covers low-value homes and older homes that private insurers likely wouldn’t cover under their normal underwriting criteria.

“Absent some kind of initiative to attract that kind of capital to Florida, I know we would not get below at least 500,000 policyholders,” she said.

http://www.insurancejournal.com/news/southeast/2011/06/17/202971.htm

Florida Trend
by Mark R. Howard
June 17, 2011

Citizens Insurance, our state-run “insurer of last resort,” is an insurance company in the same way that the Washington Generals, the designated patsies for the Harlem Globetrotters, are a basketball team. The Generals dribble, shoot and run the court, but their designated job is not to win. So it is with Citizens. It issues policies, pays claims and does the things that insurance companies do, but in every way that matters, its designated role is to be dysfunctional, or mis-functional.

Citizens rates are a joke, set by political considerations, not by actuaries. It doesn’t have to buy reinsurance, as do real insurance companies. It insures million-dollar waterfront homes, state-subsidizing wealthy people who could afford to buy surplus lines insurance in the real marketplace. It provides cheap “builders risk” policies to developers building in high-risk areas, an unwise growth subsidy.

Just as the Generals are part of the Globetrotters’ punch line, Citizens’ role has been to keep Florida’s citizens smiling by offering them cheap property insurance.

The difference, however, is that when the Generals lose, the whole arena doesn’t fall down.

Here in June, the start of Hurricane season, it’s once again necessary to remind ourselves that when Citizens — and its bench player, the CAT fund, which is also undercapitalized — run out of reserves to pay claims, they get to impose surcharges on all kinds of insurance held by policyholders of all insurance companies, not just Citizens.

Remember that we’re all still paying for Citizens’ and the CAT fund’s shortfalls after the hurricanes of 2004-05 — my own recent six-month auto policy premium includes a charge of $12.02 for “catastrophe fund emergency assessment.” My annual homeowners insurance premium — I’m covered by a private insurer — includes several similar charges: Citizens emergency assessment: $45.01; hurricane catastrophe emergency assessment: $41.78. There’s also a charge of $414.66 for catastrophe fund premium recoupment — the ongoing source of funding for the CAT fund.

All told, I’ll pay $525.49 this year — $43.79 monthly. If I had a boat or a plane, owned a business or a farm, had a mortgage insurance policy or liability insurance, I’d be paying assessments on all those policies as well.

Those charges aren’t backbreaking, but they’ll go on until at least 2014. And most of them are 6-year-old legacies — if a decent-sized storm hits the state this hurricane season, there will be more assessments, size to be determined. These “assessments,” of course, are really taxes: With Citizens, the Legislature, whose members never tire of repeating the no-new-taxes catechism, have devised a way to impose open-ended taxes indirectly, through our insurance policies, without leaving their fingerprints on the increases.

If I were an economic recruiter for another state, I would certainly take note of this state of affairs in competing against Florida. Gov. Rick Scott and the Legislature can cut the corporate tax rate to zero and toot the business-friendly horn as much as they like, but most businesses are not going to be comfortable moving or expanding somewhere where their insurance costs are completely open-ended.

Meanwhile, what does it say to prospective business recruits — and prospective residents — that the fourth-largest state in the country can’t figure out a way to have a real, functioning insurance market and is business- unfriendly enough that big, well-capitalized national insurers don’t want to do business here?

Newspapers, for their part, have done a disservice in framing the insurance issue as some kind of Joe Sixpack vs. Big Bad Insurance Company story, with cheap insurance implied as some kind of entitlement. The fact is that using cheap property insurance to subsidize growth has been de facto state policy since before Hurricane Andrew — people who worry about ineffective growth management laws and regulations may want to consider the proposition that actuarially sound insurance rates might be the most effective — and fairest — growth regulator anybody could come up with.

Citizens was meant as a temporary measure and needs to be put on a steeper glide path to extinction. The most aggressive path would be to move toward a free market where insurers would be free to set market-based rates, with the state making sure they were adequately capitalized. Another strategy would be to carve windstorm insurance out of the homeowners insurance picture and develop an affordable, not-for-profit system of paying for residential hurricane losses while leaving the rest of the property and casualty insurance field to for-profit firms. A group called Hurricane Coalition Inc., headed by former state Rep. Don Crane, has developed such a plan, complete with testing software, and it deserves consideration.

Meanwhile, as hurricane season dawns, once again all Floridians with any kind of property insurance policy must assume the official state position — take your seat, hold your breath, keep smiling and hope the arena is around to host next year’s game.

http://www.floridatrend.com/article.asp?aID=55089

Citrus County Chronicle OnLine
by Greg Hagar
June 12, 2011

Fortunately for taxpayers, Florida’s legislators made improving Florida’s insurance market a priority this legislative session by passing several important reforms.

As we all know, sinkhole insurance reform was badly needed to stop rampant fraud and abuse. Now that Gov. Rick Scott has signed Senate Bill 408 into law, Floridians will benefit from less fraud in the filing of sinkhole claims, which impact the premiums we all pay.

Addressing fraud in sinkhole claims was an important step in helping Florida’s insurance market recover. In recent years, public adjusters and attorneys have taken advantage of a loophole that allowed them to profit from fraudulent sinkhole claims similar to what they did with workers compensation claims prior to 2003.

Blatant examples of that fraud included public adjusters blanketing an area with flyers telling homeowners they could claim cracks in their driveway under their sinkhole coverage. In many of these cases, the cracks were not a result of sinkholes and research shows that only 1 percent of sinkhole claims are actually sinkholes.

Research also shows that once homeowners received claims checks from insurers many times they did nothing to fix the cracks, choosing instead to pocket the money.

It was also discovered that public adjusters failed to disclose to the homeowner that once a sinkhole claim has been made the home loses 75 percent of its value. A sinkhole claim not only affects the value of the home making the claim but also other homes in the neighborhood as well.

Unfortunately, our ailing economy only increased the incidence of this type of fraud. This left the state with no choice but to address the problem through the adoption of meaningful reforms to stabilize the property insurance market. We look forward to seeing the results of these tough-on-fraud measures and know there will be improvements, just as there were in 2003 when lawmakers cracked down on workers compensation abuse by limiting excessive lawsuits.

The property insurance bill recently signed by Gov. Scott will help jumpstart the marketplace by allowing insurers to increase their reinsurance rate from 10 to 15 percent — ensuring their ability to cover property owners’ claims in the event of catastrophic natural disasters like Hurricane Andrew or back-to-back hurricanes.

While the law is not perfect, it sends a signal to the nation that Florida is on a path to recovery, encouraging companies to return to Florida and once again start writing homeowners insurance policies.

A more favorable marketplace will increase competition, which will only benefit consumers by giving them more options and driving down premiums.

We applaud the Florida Legislature for passing reforms this year, but urge them to address the ongoing issues with Citizens Property Insurance Corp. by forcing it back into to its former status as an “insurer of last resort” instead of a subsidized, state-run company that has either driven private insurers out of Florida or, even worse, forced them into insolvency.

So until then, Florida taxpayers will continue to be on the hook for claims paid out to Citizens policyholders, and the state will continue to look for ways to plug budget shortfalls. Reforming Citizens is good for the financial health of our state, is good public policy and is just good common sense.

Greg Hagar is senior vice president of The Hagar Group, with offices in Inverness and Crystal River. He resides in Inverness.

http://www.chronicleonline.com/content/property-insurance-reform-priority-2011-legislative-session

The Suncoast News
by Keith Morelli
June 8, 2011

With the 2011 hurricane season just a few days old, a study that insurance companies use to determine homeowner premiums has predicted that if Florida is hit, widespread damage to the interior part of the state could be greater than ever realized.

The study, submitted by the highly regarded Risk Management Solutions, has the insurance industry abuzz with speculation about how the findings’ ripples will affect insurance rates for homeowners.

Previously, homeowners in high-and-dry counties along the state’s interior spine seemed insulated from the raw destruction of hurricanes. But the Risk Management Solutions model – which uses some of the data collected in 2004 when a stream of hurricanes climbed up the state from south to north – has shaken that assumption.

The 422-page hurricane damage study recently was accepted by the state as one of a handful of models that insurance companies rely on to set rates. The news was not all bad, however. The study also concluded that wind damage along the coast may be less than expected because the buildings there are built better.

What this means for homeowners insurance rates is unclear, said Jim Massie, spokesman for the industry trade group Reinsurance Association of America.

“The models are just tools for companies to use in trying to assess their hurricane risk,” he said. Insurance rates could go up in interior parts of the state, he said, and they could go down along the coast, if companies incorporate the Risk Management Solutions model.

Such changes in rates must be approved by the state’s Office of Insurance Regulation, he said. The requests for rate changes are either approved, approved with modifications or rejected, he said.

Typically, Massie said, insurance companies use more than one model in determining their rates.

Risk Management Solutions of New Jersey compiled the actuarial report that contains hundreds of graphs and maps and highly technical engineering and meteorological data, and submitted it to the Florida Commission on Hurricane Loss Projection Methodology, which approved it last week as one of the five risk-management models used by insurers in setting rates.

The model also is used by insurers doing business in Florida in deciding whether or not to continue coverage in certain areas of the state, said Jack Nicholson, chief operating officer for Florida Hurricane Catastrophe Fund and member of the commission, which was created in 1995 to project hurricane losses for insurance purposes.

The commission is an independent body that works closely with the Florida Hurricane Catastrophe Fund, Nicholson said, and reviews and adopts risk management findings for insurers of property in Florida.

The notion that hurricanes can cause extensive damage to the interior of the state was realized seven years ago when a handful of storms marched up the peninsula, he said, devastating inland communities previously thought relatively safe.

“Most of these models have been around for some time,” he said, but only since then, has the interior of the state been considered as a place not-so-protected from a hurricane’s wind and rain.

Coastal properties still can be damaged by storm surge, he said, but buildings along the shore nowadays are built to withstand hurricane force winds, so the risk of widespread wind damage along the coast is less than in previous years.

Hurricane season began on June 1 and the National Oceanic and Atmospheric Administration has predicted between 12 and 18 tropical storms this summer, with six to 10 becoming hurricanes. Of those, NOAA expects three to six to grow into Category 3 or stronger.

Florida has not been hit by a hurricane since Wilma in 2005, and it’s not easy coming up with risk assessments in the meantime, according to one of the other models, submitted by AIR Worldwide Corp.

“Property values change, along with the costs of repair and replacement,” the report said. “Building materials and designs change and new structures may be more or less vulnerable to catastrophe events than were the old ones. New properties continue to be built in areas of high hazard.”

Ryan Ogaard, Risk Management’s senior vice president, said models are fine-tuned every two years. They have to be, with constant advances in technology and data collection, he said.

This year, there have been improved scientific findings in how hurricanes are shaped, he said, and how they behave as they travel over land.

Dynamics from past storms are included in the data, he said.

“We always want to make sure that when we build a model, we look at a historical storm, to make sure that the model does not contradict it; that the physics in the model represents that storm and the damage that happened in it.”

Generally, risk management hurricane damage models have a shelf life of five to seven years before they need to be overhauled from top to bottom, he said. Every few years, academics come up with new research that can be applied to models, he said.

The Risk Management Solutions model “incorporates the results of a three-year research and development project into how hurricanes decay over land, conducted with the University of Miami, together with detailed analysis of tens of thousands of wind-speed observations – 10 times more than were available in the last hazard update in 2003,” said a cover letter included in the filed documents.

Based on new data on how hurricanes behave as they cross the land, the letter said that “the risk in central Florida, in areas such as Orange County, is actually higher than previously understood.”

kmorelli@tampatrib.com (813) 259-7760

http://suncoastpasco.tbo.com/content/2011/jun/08/081622/new-hurricane-models-impact-on-insurance-rates-unc/news/

The Palm Beach Post
by Laura Green
June 7, 2011

If Citizens Insurance is sending an inspector to verify that your home is hurricane­hardened, there’s a good chance you can wave goodbye to some of your mitigation credits.

Since the company started reinspecting with an eye toward catching deception, 65 percent of single-family homes have lost credits. Among commercial properties, 53 percent inspected were found to have discounts they didn’t deserve.

The state changed its inspection protocol last year after reports from insurance companies of growing fraud. At stake are millions of dollars in credits that insurance carriers award. Insurance giant Citizens offers its policyholders about $1 billion in credits each year.

“If the error rates are anywhere near what we’re seeing, we need to make sure” credits are given properly, said Christine Ashburn, Citizens’ director of legislative and external affairs.

Citizens plans to inspect 94,000 policies this year.

Insurance officials argue that people gaming the system can hurt all policyholders. If the company has to pay out claims and it’s not bringing in as much money as it needs, it will raise everyone’s rates.

Among the abuses noted by the state Office of Insurance Regulation were unqualified or unregulated inspectors, vague forms and a lack of documentation proving homeowners took the measures they said they had taken to harden their homes.

Some inspection companies actually advertised in writing that they “guaranteed” that if they were hired, a policyholder would receive credits, Ashburn said.

Citizens is not targeting any specific inspectors who seem to have a pattern of inappropriate or perhaps fraudulent inspection reports. But the company is closely watching trends and could refuse to accept reports from specific inspectors or inspection management companies.

Certain homes are more likely to be reinspected: older homes, homes with $10,000 in credits rather than those with $100 in credits, and homes claiming types of credits that previous inspections have shown are often misapplied.

To qualify for credits, residential and commercial property owners must hire a certified inspector who provides photographic evidence of any qualifying hardening features.

To prove a credit is justified, the state also has adopted a new four-page form, twice as long as the previous version. Inspectors also are required to follow standards that spell out exactly what qualifies for a credit.

For example, a generous inspector might have previously given a shutter credit if a homeowner had them installed on all but two windows. Now, if all the windows aren’t all covered, the homeowner gets no credit.

To count a metal roof strap as qualifying mitigation, the new standards are specific down to the number of nails and direction – three facing one way and one facing the other.

The same standards used to justify credits in the first place are also the ones used during reinspections ordered by Citizens or other insurance companies. While insurance officials believe fraud is a huge factor, policyholders also can lose credit because standards have changed. Current building codes, for example, require bigger nails spaced closer together on roof straps.

David McDermott, an independent insurance agent in Lake Worth with 35 years in the business, hears it when his clients who once qualified for a credit find out they don’t anymore.

Homeowners seeking mitigation credits must pay for the inspection themselves, so they’re often frustrated to find out they shelled out money for an inspection that was essentially overruled.

McDermott said he typically schedules the inspections for his clients with companies that promise the $150 inspection cost will be made up in credits they get the insured.

When his clients are reinspected and lose credits, they’re “out of luck,” McDermott said.

Yet he thinks it’s a good thing that insurance companies are verifying that people’s homes and business are as protected as they say they are.

“We’re talking about a construction feature that will make your home strong against wind,” he said.

http://www.palmbeachpost.com/money/fraud-errors-and-new-codes-making-hurricane-insurance-1520535.html