As in previous years, our December issue offers readers a retrospective of the topics we covered over these past 12 months. Citizens Property Insurance Corp., the Florida Hurricane Catastrophe Fund, and legislative and regulatory activity justifiably earned space in most issues. However, we also provided extensive coverage on workers' compensation, excess and surplus lines, a variety of agency management topics, health care, and many of the ancillary lines of coverage that round out an agency's book of business.
We invite you to revisit this past year in the excerpts below. As an added bonus, our revamped web site makes it is easy to find the full text of all of the stories highlighted here. Simply go to www.floridaunderwriter.com, select the appropriate month from the pull-down menu, and enjoy a second read of the entire article. The titles of excerpted articles are noted below for easy reference.
Our web site catalogs all of our articles, along with our directories and calendars, in
a user-friendly and intuitive environment. In addition to accessing this archive service, we encourage you to visit the site on a regular basis for the latest information on the Florida insurance industry.
JANUARY
"Cover Florida" Health Program Debuts
Florida's four million residents lacking health insurance are getting new low-cost options this month under the state's Cover Florida Health Care Access Program. The Legislature exempted these plans from the state's more than 50 mandated health benefits. As a result, plans have more limited benefits than traditional policies and strict caps on the total amount of coverage. "These limited benefit plans are a liability issue for insurance agents," said David Gentry, president of the Florida Association of Health Underwriters (FAHU) and chief operating officer and insurance agent at Fringe Benefit Plans, Inc., of Winter Park.
Q&A With New Insurance Consumer Advocate Sean Shaw
Perhaps the biggest concern passed on from my predecessors is the fact that Florida citizens are in danger of being assessed by multiple entities in the event of a hurricane. We must find a way to lower the people's current level of exposure so that the private market assumes the risk associated with hurricanes, rather than place that risk on the backs of Florida taxpayers.
2009 Insurance Industry Challenges
We can expect increased pressure for federal insurance regulation when practical. Also, state insurance departments will endeavor to tighten controls with limited available resources to ensure compliance with unfair claim practices regulations. If you purchase another insurer, do not be surprised by a financial ratings agency downgrade until you can successfully prove the decision was the correct one.
FEBRUARY
Happy Days Are Here Again! Well, Maybe
"We think the worst of the soft market in most segments is over," said the National Association of Professional Surplus Lines Offices Executive Director Dick Bouhan. "Our sense is that the declines are stopping. We are hearing little bits of optimism here and there. 'Stable' is the word I keep hearing. Although where it goes from here, we're not quite sure."
Condo Law Changes Cause Confusion
HB 601 is law -- unclear as it may be. We at FAIA are actively working with the major players involved in the whole condominium insurance issue on a bill that will clarify, change, and eliminate some of the problems associated with HB 601. That bill, however, will not even be introduced until the 2009 regular session, so it is almost impossible for any statutory changes to take place before about July. I would stress again -- HB 601 is the law.
Major Decisions Looming
With little fanfare and no debate, Florida lawmakers meeting during the January special session put on hold a program that had been launched three years ago as one of the steps intended to help fix the state's ailing property insurance market. Legislators directed that all money paid back to the state as part of its insurance capital incentive build-up program go back into the state's general accounts instead of staying in the program itself. The decision means that the build-up program -- which was given $250 million to lend out to insurers willing to write new policies in Florida -- is essentially dead.
MARCH
Will Budget Woes Squeeze Out Industry Concerns?
Florida's public policy for financing hurricane losses seems to have been dreamed up in another sunny state -- Las Vegas. Our state's policy for financing storm losses is tantamount to betting the house and our life's savings on one wild Nevada crapshoot. What is at fault is the public policy that has forced the Cat Fund to far overreach its ability to pay. That bad policy was driven by a priority philosophy of artificially holding down rates of insurance premiums without regard to the impact of that rate suppression to the stability or financial solvency of our financial mechanisms for paying for storm losses.
Cat Fund Shortfall Grows
Heading into this year's hurricane season, financial advisors and top officials for the Cat Fund estimate that the fund is a whopping $18.43 billion short of what it is supposed to cover for both private insurers and for Citizens Property Insurance Corp. "We're really in a bad situation," conceded Cat Fund CEO Jack Nicholson.
APRIL
Surviving in Today's Challenging Environment
For property and casualty agencies looking to diversify their business, employee benefits are a great add-on product to sell to commercial customers. Providing benefits products to your commercial accounts makes you an invaluable partner to them. However, benefits management requires a set of operations and procedures that may not be familiar to your agency employees. It requires a different set of relationships and processes, and much of that industry is moving to an on-line environment. You cannot shoehorn benefits into a generic line of business process and assume that you can run it effectively (or drive great customer service!).
Workers' Compensation Premium Fraud Claims Many Victims
Despite aggressive investigative programs, in fiscal 2008, the state was successful in getting convictions in only a handful of workers' compensation premium fraud cases, according to the department's annual report. The relatively low number of convictions is one indicator of how difficult premium fraudsters are to catch. Florida is one of six states that have made workers' compensation premium fraud a specific felony.
Decision Time for Credit Scoring?
The Florida Office of Insurance Regulation has proposed rules to regulate the use of credit scores or credit reports in insurance underwriting. In mid-March, Insurance Commissioner Kevin McCarty issued a statement in support of the decision by the National Association of Insurance Commissioners to hold a hearing to examine how insurance credit scoring is affecting consumers in today's economic climate, reiterating his long-held position that allowing the use of credit scores in the underwriting process unfairly discriminates against minorities and low-income individuals. General industry reaction has been that credit scoring is a reliable predictor of loss that allows insurers to more accurately and efficiently allocate and price individual risks.
MAY -- the 25th Anniversary Issue
A View From the Insurance Office -- 1976-1989, Bill Gunter
One other issue that comes to mind from my 12-year tenure as insurance commissioner was the collapse of Florida's liability market. In the mid-1980s, rates were soaring, lawsuits were rising, and payouts were at record highs. Litigation concepts and terms such as prevailing party attorney fees, bifurcation of trials, non-joinder, collateral sources, and joint and several liability were beginning to pierce the threshold of public consciousness. Meanwhile, insurance companies were abandoning Florida and the liability crisis was impacting nursing homes, closing day-care centers, and affecting other high profile professions and businesses. The crowning blow was when Florida's only remaining medical malpractice carrier announced it was leaving the state.
A View From the Insurance Office -- 1989-1995 and 2001-2007, Tom Gallagher
One of the highlights of my career as insurance commissioner and treasurer has to be that cover photo on Florida Underwriter's December 2002 issue. This magazine depicted me clad in a suit of armor, holding a bodacious sword. "Gallagher's Crusade," they called it. The article talked about "my" fight to reform the workers' compensation system. The story called me -- well, it called me quite a few things, actually -- but it said I was "without a doubt...the most activist public official in state government," and that I "thrived on conceiving sweeping reform plans and waging the quixotic battle." Guilty.
A View From the CFO's Office Today, Alex Sink
Instability in the property insurance market continues to threaten Florida's economic health. I believe we need to lower Cat Fund exposure by gradually phasing out the TICL layer over a series of years. Also, I have approached legislative leaders with the idea of empowering another entity -- such as the Florida Cabinet, a statutorily-created entity, or a committee of legislators -- with the ability to set coverage levels in the Cat Fund in the fall, which would allow the state to take advantage of the broader range of possible markets. Citizens Property Insurance Corp., which was created by the state as an "insurer of last resort" but has become the largest insurer in Florida, must also be reformed.
JUNE
2009 -- A Courageous Session
The Florida Legislature took courageous votes during the 2009 session to raise Citizens Property Insurance Corp. rates. Citizens' rates will rise for the first time in three years, but under a 10 percent cap. Another politically tough position was to roll back Florida Hurricane Catastrophe Fund coverage to make the program financially sound once more. The ball is in Gov. Charlie Crist's court now on another huge property insurance bill (HB 1171) approved on the final day. He is deciding whether to veto a proposal allowing large insurers to sell residential policies at rates not subject to approval by the Office of Insurance Regulation.
Health Insurers Win Some, Lose Some
Florida's health insurers blocked several mandated-coverage bills from becoming law in this year's legislative session. But the industry was defeated by the physician lobby on a bill that would require health insurance companies to directly pay out-of-network providers. The industry also came out on the losing end of legislation that would provide guarantee issue of Medicare supplement policies to people under 65 who qualify for the program because of a disability or end-stage kidney disease.
JULY
E&S Industry's Fortunes Improve
The economic realities of 2008 and the opening months of 2009 challenged most industries, and the E&S market was no exception. As we move into the second half of 2009, positive signs are emerging. Insurance experts are predicting that E&S's next business cycle will be one of controlled growth with a gradual progression of rate increases. The current economy has caused a tightening of capital in the market, and 2008 was the fourth most expensive year for insured catastrophe losses in the past 10 years. Though it is difficult to forecast when these rising reinsurance costs will trickle down to the customer, clients should be advised to prepare and budget for an increase in premium.
Property Insurers Tackle Reinsurance Challenges
Guy Carpenter reported that, as of the April 1 reinsurance renewals, Florida property and casualty reinsurance rates increased 10 to 14 percent for the lower layers of coverage, and 14 to 16 percent for the higher layers of coverage. Despite pricing increases, Florida property insurers have purchased more private reinsurance for the 2009 hurricane season. Although the market is tight, there appears to have been sufficient reinsurance capacity to satisfy this year's private market demands.
Limited-Benefit Health Plans for the Working Uninsured
The latest government statistics estimate that 47 million Americans do not have health insurance coverage. According to the Kaiser Family Foundation, 54 percent of those Americans are in working families. These are the working uninsured and are often in part-time and hourly jobs where they do not have access to a major medical plan through their employer or spouse. The working uninsured population is often painted as young, active and indifferent to medical care. However, a recent study found that the U.S. working-age population who suffer from chronic health conditions do not have insurance coverage and have less access to health care compared to their insured counterparts.
AUGUST
Challenging Year for Specialty Markets
For most commercial specialty classes of business, rates are not increasing and in some cases may still be falling. Brokers appear resigned to the idea that rate increases on most classes will not happen to any measurable extent in 2009. Also adversely affecting agency revenue is the pullback by policyholders trying to lower their costs by asking for less coverage, higher deductible, and/or lower limits.
Q&A With Scott Johnson
Property values are down from their inflated pricing over the last several decades, building starts are down, real estate sales are down -- all this impacts insurance agents' revenues in a negative way. In workers' compensation, premiums have plummeted since the 2003 legislative changes. These revenue shortfalls are exacerbated by the economic downturn -- employers are laying people off and reducing salaries, and workers' compensation premiums are based on payroll. Any agency exclusively writing workers' compensation must be in dire straits right now. In fact, any payroll-based premium
is suffering.
Citizens' Board Approves New Rates
Even though the chairman of Citizens Property Insurance Corp. called it "fiscally irresponsible," the state's largest property insurer is moving ahead with a controversial new rate structure for 2010. The new rate structure is expected to generate about $140.8 million. The company is not collecting anywhere close to actuarially sound rates. That would take an overall statewide rate increase of 47 percent. But the new law regarding Citizens capped any year-to-year rate increases at 10 percent for individual policyholders until the rates reach actuarial soundness.
SEPTEMEBER
Mobile Homes, Mobile Market
A U.S. Census Bureau report entitled Structural and Occupancy Characteristics of Housing: 2000, notes that Florida has over 800,000 mobile homes/manufactured housing units. Tom Zuttel of the Office of Insurance Regulation reported that less than half (344,593) were insured as of Dec. 31, 2008. Those homes carried total insured values of $27,974,430,478, and accounted for $344,661,566 in premium. OIR statistics also show that the top writer in the state is Citizens Property Insurance Corp., with 87,646 mobile/manufactured homes.
Reading, Writing, and Insurance
An estimated five million college students are uninsured -- out of 17.5 million, according to the U.S. General Accountability Office. Put another way, college students make up about 12 percent of the 46 million uninsured U.S. residents. Young adults between the ages of 19 and 29 represent the largest segment of uninsured, with nearly one in three lacking coverage. Florida State University is one of the nearly one-third of U.S. colleges that mandates that all students have health insurance.
A New Workers' Compensation Hybrid
An attractive alternative to two traditional workers' compensation programs may be a combination of the best from both -- a captive/deductible plan. Combining a high deductible plan with captive risk financing provides a fuller solution, more control, greater flexibility, and potential tax savings. In addition to the significant economic benefits, a hybrid program is a powerful strategic risk management tool.
OCTOBER
Dealing With That Sinking Feeling
In addition to being the No. 1 target in the U.S. for hurricanes, Florida is also No. 1 for developing sinkholes, particularly along the central western Gulf Coast. This year the Legislature passed SB 742, which becomes law Jan. 1, 2010. It allows insurers to non-renew policies that include comprehensive sinkhole coverage in Pasco and Hernando counties (among the sinkhole-prone regions of Tampa Bay), then offer policyholders the opportunity to repurchase the coverage as an endorsement.
Buying or Selling? Think Local
Florida independent agents and brokers contemplating mergers or acquisitions are at a crossroads -- a seminal moment in time that brings an end for some and a profound new beginning for others. It is a terrible time to sell except for one thing -- in the next few years, it is going to get worse.
Citizens Still Looms Large
Florida's largest property insurer is showing little signs of getting smaller anytime soon. Whether it is due to the ongoing stalemate over State Farm Florida or a recognition that only the riskiest policyholders remain enrolled, it looks like Citizens Property Insurance Corp. will keep at least one million policyholders for some time.
NOVEMBER
With All These Problems, Who Need Hurricanes?
Florida is engulfed in a whirlwind of negative homeowners' insurance news. The latest contretemps revolves around a little-noted start-up in Ponte Vedra Beach called American Keystone Insurance Co. Licensed in 2007, the company was recently ordered into receivership for the purpose of liquidation. American Keystone had approximately 7,800 policies in force. The man behind the curtain at American Keystone was Bill Griffin of Riscorp fame. The spectacular rise and fall of Riscorp in the early 1990s -- the second-largest failure of an insurance company in Florida's history -- left Griffin a multi-millionaire but also sent him to federal prison for orchestrating illegal campaign contributions at the company he founded. That felony conviction carried a lifetime ban on active participation in the insurance industry. So how was he allowed to apparently initiate and finance this new insurance entity?
Florida Still Fine-Tuning Public Adjusters
The number of licensed public adjusters in Florida increased from approximately 400 to over 2,500 as eight successive hurricanes pounded the state from 2004 to 2005 and homeowners' claims abounded. Although the state has been free of major storm damage for the past few years, activities of public adjusters have not abated. Specifically, there has been an increase in solicitation efforts by public adjusters to reopen claims for hurricanes in 2004 and to submit new and reopened claims respective to the 2005 hurricane season.
The Faces of Excess & Surplus Lines in 2009
Anecdotal information from excess and surplus lines market agents and carriers throughout the industry indicate that premium writings are down overall this year, as everyone continues to slog their way through a soft market cycle. However, there are a few bright spots and some glimmers of hope. Although premium results are down overall, some coverages have experienced increases in total premium written over the past 18 to 24 months. Commercial Package premium increased by more than 19 percent and some 7,400 policies from 2006 to 2008, while Commercial Property premium was up over nine percent and 15,000 policies for the same two-year period.
DECEMBER
Our final issue for the year offers perspectives on how the major lines fared in 2009, some thoughts on what we may expect in 2010, the state of the ubiquitous Cat Fund, and more. Also, we once again package with this issue our complimentary Wall Calendar of upcoming industry events. Enjoy.
