Only 12 of 18 perils happen in Florida, ‘So what’s your problem?’ quips moderator

The country has experienced 18 different types of natural disasters, while Florida deals with “only” 12 of these perils. Yet insurers and consumers have big problems in Florida.

“When you go through the list and take a look at Florida, you only have 12 of the 18 perils here. So what’s your problem?” a national agents’ group leader asked insurance executives and regulators.

With his remarks, Len Brevik, executive vice president and CEO of the National Association of Professional Insurance Agents, was prodding panelists at the recent PIA of Florida member summit in Orlando.

“Prior to 1990, billion dollar events just weren’t happening but now a billion dollar event seems to be ‘oh, well’ and commonplace,” Brevik said.

Brevik called the panelists “the movers and shakers” in Florida’s property and casualty market. The experts assembled included: Peter Corrigan, chief underwriting officer for Florida Family Insurance Co.; Nancy Baily, president and CEO of Travelers of Florida; Ed Sowers, catastrophe agency advocate manager, Citizens Property Insurance Co.; Sam Miller, executive vice president of the Florida Insurance Council; John Jerger, chief operating officer and co-founder of West Point Underwriters; Sharon Binnun, deputy commissioner of the Florida Office of Insurance Regulation; Carolyn Daniels, assistant director of agent relations, Florida Surplus Lines Service Office; and Lauren Cain, chief of consumer outreach for the Department of Financial Services.

The “movers and shakers” opted to discuss how to make the marketplace work for consumers and industry moving forward, rather than consider the number of disasters they may be dodging.

Educate the consumer
Cain said the insurance industry needs to educate consumers about the state-of-affairs in Florida, pointing out that many homeowners only live in the state six months in a year.

“We have an obligation to help the policyholder understand what it means to have to invest in an insurance policy in this state; what that is going to mean out of their budget, and what it is going to mean as premiums go higher. It is going to be harder for independent agents to sell that policy with a straight face,” Cain explained. “But we all have to do a better job at setting those expectations so that consumers understand that this is no longer an option, it’s a commodity for Floridians.

“That’s the reality of Florida and everyone has to realize they have to do their part to be financially prepared,” Cain said. “How do we do that in partnership with insurance products that are out there?”

Cain said the bill recently passed by the Florida Legislature takes very bold steps.

“Part of that is looking at the fact that we are not in this one or two years; we are in this for the next generation,” she said. “My daughter is going to live through a very busy storm season for the next 20 years.

Carriers coming to Florida need to prepare. She said many companies were not prepared in 2004 or 2005 to handle hurricane claims.

“I’m not talking financially; I’m talking about phone calls,” she explained. She said carriers and agents need to have catastrophe plans and need to know where they are going to send consumers with claims issues. She cautioned this should not be just a one-time plan; rather it has to be ready to implement in multiple catastrophes and over multiple years.

The panelists answered questions about what the future holds for property insurance in Florida.

Looking back at Andrew
“If you look back at Andrew, it took a full year for the industry to reach a 95 percent claims closure rate and that was a catastrophe that hit a limited area,” Corrigan said. “In 2004 and 2005, virtually the entire state was affected, with about 2 million claims, and we hit that 95 percent closure rate in six months or less. That says a lot about our ability to take care of claims, losses and services.”

Corrigan said one problem is that reinsurers and other sources of capital view Florida as the most risky place to write property insurance and need a better than average return.

Corrigan pointed out that 8 percent of the property in Florida is near the coast, and Florida has double the amount of coastal property than the next closest state. He said Florida has to be considered a risky place.

New players essential
Baily said it is essential to attract new players to the market place. She said there are about 40 limited insurers each writing less than $25 million in surplus policies. They represent about $1.5 billion in premium volume out of an $80 billion market place, she said.

“There are a lot of small new entrants into a difficult marketplace. We are trying to use a number of mechanisms to attract that size player and other large national players need to be in the state to attract and retain that capital.

“Not only do we have to attract new capital but we have to make it more profitable for established players and quit changing the rules, which is one of our major issues. We base our pricing and our product based on what the rules have historically been, on what we need to cover and what the deductible structure needs to look like and if those rules keep changing, it creates a level of uncertainty that leads carriers to be cautious about what they will write in Florida,” Baily added.

Citizens claims
Sowers noted that Citizens handled 120,000 claims in the 2004 season, and 175,000 and counting for 2005. During that time it also processed 40,000 new business applications, as well as 60,000 renewal policies. Prior to the 2004 storm season, Citizens had more than $1 billion surplus in the wind account.

Miller maintained that Florida is always going to have Citizens, although perhaps not always as big as it is now. He said that the private market is never going to be able to take 100 percent of the state’s considerable and still growing exposure.

Mitigation essential
Jerger suggested that prior to tracking new capital into Florida, the state and industry must find ways to enhance mitigation efforts. The CAT fund is intended to help in this regard, he noted.

“Without finding ways for reinsurers to make profits year after year, it is going to be difficult to attract new capital and new investors until they see they can actually purchase reinsurance,” Jerger said.

“Part of that is the model. We have to pay attention to how we model and how we spread our risks.”

Stabilizing the market
Binnun said Insurance Commissioner McCarty is dedicated to stabilizing the market.

“We are looking at ways to stimulate the market, the property market itself, and reinsurance costs,” Binnun maintained. “Reinsurance costs are going up and there was not a lot we could do except provide the availability, so we made a decision.”

She said the Department of Insurance told carriers to include an estimate of how much rates will go up in their filings, even if they do not know exactly how much they will go up.

“Do a rate filing now and by the time those new rates on the reinsurance treaties get implemented, your premium is in the right place,” Binnun said.

“Before we even have the chance to have or not have storms we are going to be turned upside down and have some financial difficulties. We realize that and that was huge.

“If you had asked two years ago if Commissioner McCarty would do something like that, the answer would have been, ‘Don’t think so!'”

Topics Florida Agencies Reinsurance Property