Mitigation Discounts Under Scrutiny
Insurers have reported that their underwriting profits have been slammed due, in part, to mitigation discounts. The discounts have been painful to Citizens, and since the state-run insurer’s rates are currently not actuarially sound, charging even less makes the specter of assessments loom large.

At its board meeting in December, the Actuarial and Underwriting Committee stated that as of mid-November, Citizens had completed re-inspections of more than 7,200 buildings. Of those properties, undeserved discounts were received by 64 percent of policyholders in the personal lines account and 52 percent in the commercial lines account. That equates to more than $5.3 million in premium that should have been collected but was not.

Blending the Florida Hurricane Cat Fund and Traditional Reinsurance

Underwriting property catastrophe reinsurance in Florida is a uniquely difficult undertaking. In general, property catastrophe deals written on an excess of loss (XOL) basis are considered relatively simple compared to other lines of reinsurance. In Florida, however, when selling XOL coverage for residential risks, incorporating the effect of the state-run reinsurance company, the Florida Hurricane Catastrophe Fund (Cat Fund), adds complexity to otherwise straightforward deals.

Cat Fund coverage is a critical aspect of a Florida residential insurer’s reinsurance program and must be blended with traditional products. A lack of understanding the critical differences between Cat Fund coverage and traditional reinsurance can lead to unintended consequences.

FEBRUARY
The Continuing Challenges of Florida’s E&S Market
Because of its unique position in the industry, E&S operations are relatively free of regulatory interference. Surplus lines is not, however, immune to the problems of the overall economy. The trending for Florida’s E&S premiums written has been a fairly consistent drop off for the past several years.

Annual Survey Reveals Risks, Rewards of Insurance Jobs
Of the 2011 respondents, 21.9 percent were CSRs, compared to 5.6 percent in 2010. The rest of the occupation breakdown for 2011 versus 2010 was: Underwriters, 5.6 percent in 2011, 6.3 percent in 2010; Agents/Brokers, 53.6 versus 66.7; Others, 18.9 percent versus 21.5 percent.

As testimony to the long-term viability of the insurance profession, a vast majority of the respondents said they have been in the business for two decades or more; the average for all respondents was 24.3 years. Fifty-two percent had college or post-graduate degrees. Males accounted for 42 percent of the respondents; females 58 percent. This varies significantly from 2010, when the gender ratio was males 66 percent, and females 34 percent. The average age of respondents was 50.8 years. The youngest respondent was 24; the oldest 76.

Surviving Group Health’s Perfect Storm
It’s been a perfect storm for agents and brokers selling health plans to small businesses, Florida’s economic lifeblood. The worst economic downturn since the Great Depression, the uncertainty of health care reform, and the ever-rising cost of care have converged to create a difficult selling landscape. There are emerging opportunities, however, that can help ease the strained small group sales environment. To benefit, brokers and agents need to understand these factors and communicate them effectively to current and prospective small group customers.

MARCH
A Trimmer Budget in 2011
Driven by months of double-digit unemployment rates, politicians of every stripe—from the “let’s-get-to-work” governor to the rank-and-file—are focused on job creation and economic rejuvenation. Debate is occurring at all levels on policy options that will make Florida a more welcoming place to do business. Gov. Scott is advocating forcefully to slash and eventually eliminate corporate income taxes and to reform the regulatory process. Scott has often declared his disdain for regulation, claiming it adversely impacts job growth.

If these ideas prevail, the 2011 session could produce significant opportunities for the business community at large—and the insurance industry in particular—in terms of passing legislation relating to issues such as tort reform, an impossible feat in previous years.

Brown & Brown’s New Regional President Assesses the Florida Insurance Market
At the peak of the economic boom, Florida was flying higher than other states; not surprisingly, its recessionary low was lower than most other states. The states of Arizona and California are other examples, like Florida, that experienced the extremes of the economy. Similar to those states, Florida’s economy is showing signs of recovery, albeit slow, and perhaps a little slower than the states that didn’t experience the extreme swings we did. For sure the worst is behind us. Florida’s economy is starting to show signs of improvement. The “comeback” in Florida I think has begun.

Agreeing on the Strategy Is Tougher Than Agreeing on the Ask
The agenda developed by the insurance community and its business allies for Florida’s 2011 legislative session is our biggest “ask” ever. It includes a property package more comprehensive and stronger than SB 2044 vetoed by then-Gov. Charlie Crist in 2010; insurer bad faith law reform, including a right to cure; significant medical malpractice insurance issues; expanded rate deregulation for commercial insurance; flex rating for residential insurance; an insurance fraud package preserving the two top fraud-fighting tools, independent medical exams (IME) and examinations under oath (EUO); and PIP attorneys fee caps. It is staggeringly ambitious, but one reflective of the insurance market crises facing us.

APRIL
How Insurance Agencies Are Outsmarting the Economy
To gain a real-world perspective of how Florida’s agencies are faring, we asked four local insurance executives to share their successes and challenges. Providing insight into how they manage their offices’ income, outgo, and upkeep are: Tina Blackwell Romaine, chief operating officer of Blackwell Insurance Agency, Panama City; John Hosey, president of Caton-Hosey Insurance, Port Orange; Ted Ostrander Jr., president and chief executive officer of Lassiter Ware Insurance, Leesburg; and Joe Perry, president of J.P. Perry Insurance, Jacksonville.

Perry: Oddly enough, in the last several years we have had a couple of the best new-business years we have ever had. The issue is not new business. It is the existing commercial book that is shrinking because of fewer employees, fewer gross receipts, smaller inventories and fewer vehicles. We are a reflection of our customers.

Ostrander: We focus on providing services outside the normal routine for an insurance agency. For example, we have a full-time HR professional who will conduct a human resource audit for a client, review policies and procedures, and do just about anything related to HR processes.

Florida’s Insurance Industry Not Assured of Success in 2011 Legislative Session
Florida lawmakers sauntered into the 2011 session promising to help businesses, end red tape and regulation, and revive the state’s economy.

The Republican-controlled Florida Legislature championed the idea of free markets at nearly every turn in the first few weeks of the 60-day session. However, so far it is clear that the insurance industry may not get everything it wants, even from a decidedly pro-business legislature.

A comprehensive property insurance bill intended to address cost drivers that affect the bottom line of insurers is moving—but not without much debate, controversy and changes pushed by those who say the measure is unfriendly to consumers. Other insurance measures also may have a rough time getting to the desk of Gov. Rick Scott. These include legislation affecting Citizens Property Insurance Corp., bad faith laws, and an ambitious proposal to allow insurers to raise rates up to 30 percent a year without approval from state regulators.

Will Florida Become the Next Major Venue for Captive Insurers?
The scope of captive insurance in Florida could be significantly expanded if captive-specific legislation pending in the 2011 Florida Legislature is ultimately enacted. HB 1235 and SB 1836 may spur captive development in Florida as a result of the lowering of captives’ capital and surplus requirements, as well as the expansion of the types of captives permitted in Florida, including the creation of a “special purpose captive insurance company.”

MAY
Preserving Employee Benefits
While nearly all workers have been impacted in some part by the recession, their financial and benefit needs, views and priorities differ greatly, due in part to age, behavior, and life management styles. This can translate into workers having vastly different feelings toward benefit offerings. To remedy the inflexibility of the single-offering benefit package, employers need to offer a variety of products and services that satisfy a diverse employee base while staying within employer and employee budget constraints.

Today’s employees are looking for non-medical benefits such as life, disability, dental, vision, identity theft, and legal services to round out their health benefits. However, while employees need versatile benefit offerings, employers are not always able to fully fund the program. Agents should advise employers that workers looking for these additional benefits are usually prepared to pay part or all of the cost.

Board Debates Shoring Up Citizens
An analysis done by Citizens’ financial advisors shows that the carrier’s high risk account—which covers many of the coastal properties—has about $1 billion below what it needs to tap into the Cat Fund.

Citizens plans to bolster its finances don’t stop with purchasing private reinsurance. The carrier also is considering borrowing anywhere from $500 million to perhaps as much as $1 billion ahead of the hurricane season. The push by Citizens to get more money to shore up its finances comes as the Florida Legislature is debating whether to let the carrier raise its rates.

Storm of Negative Forces Hurting Workers’ Compensation Market
In May of each year, the National Council on Compensation Insurance (NCCI) presents its annual State of the Line summary of the economic forces affecting the workers’ compensation market. We also offer stakeholders our thoughts on where the market will be headed in the next 12 months.

As we prepare to deliver that much-anticipated report again this year, the early signs are of a market that is struggling against some significant headwinds. Two forces, in particular, continue to buffet the industry: A troubled job market and regulatory uncertainty.

JUNE
Florida’s Fragile Property Insurance Market
Citizens has become the primary insurer of sinkhole peril. Its sinkhole claim count averaged 200 per month at the end of 2010; during 2011, that has increased to 500 per month. These additional liabilities and resulting claims are adversely affecting Citizens’ already precarious finances. The carrier is paying out four to six times more in sinkhole claim dollars than it receives in premiums.

SB 408, which finally passed as session wound down and was signed into law by Gov. Rick Scott on May 17, sought to address sinkholes and other property insurance cost drivers. Prospectively, SB 408 should eliminate or defuse cost drivers enough to resuscitate the private carrier market from a severe adverse trend in non-catastrophic loss ratios. Florida Association of Insurance Agents President and CEO Jeff Grady went so far as to declare the session “absolutely a positive experience for the insurance industry.”

Catastrophe Risk Management at the Point of Underwriting
While Florida insurers have long used catastrophe models to assess portfolio-level catastrophe risk, leading carriers assess catastrophe risk before the policy is underwritten. Incorporating catastrophe modeling into the underwriting process is easier than most assume. Technology has advanced to the point where an individual risk can be analyzed as part of an automated underwriting process.

Using catastrophe risk models at the point of underwriting allows underwriters to outmaneuver their competitors by writing policies for properties that hazard-based analyses reject, but are likely better risks.

Prized Collectibles Are Often Underinsured
Valued possessions are often inadequately insured by the contents’ coverage of a homeowners’ or renters’ policy. For example, a homeowners’ policy may have a $2,500 sub-limit (after deductible) for collections. The typical claims adjustment process would appraise these items at actual cash value. For a collector with a garage decorated as a vintage gas station or a dollhouse furnished over a 40-year period, a $2,500 check will underinsure the loss by thousands—maybe tens of thousands—of dollars.

JULY
Florida’s Cat Fund: Healthy Enough for Another Year?
Inside a gray-carpeted conference room an obscure panel signs off on an important number: Just how much money could the state-created reinsurance fund known as the Florida Hurricane Catastrophe Fund (Cat Fund) borrow if the state got hit by a big hurricane, or just as bad, a series of smaller storms?

The sophisticated guesswork that goes into this is more than some academic exercise. This number is a reflection of the stability of the Cat Fund, itself an important backstop for insurers that operate in the state, including Citizens Property Insurance Corp. And this year the answer is somewhat troubling.

Waking Up to the Faults in No-Fault
When first enacted in the 1970s, no-fault auto insurance was intended to address the underlying cost drivers in a tort-liability system that had made insurance more expensive than necessary. No-fault supporters pointed to benefits such as reduced non-economic damage compensation, increased compensation for injury victims, less compensation for personal injury attorneys, and faster recovery of out-of-pocket expenses by accident victims. What has developed in the intervening 30 years is a seriously flawed system seemingly immune to repeated attempts at reform.

A Cautionary Tale for Wholesale Brokers
Although no Florida appellate court has discussed an independent wholesale broker’s potential liability for the actions of an unrelated retail agent, courts from other jurisdictions have held that a wholesale broker does not owe a duty of care to the insured and certainly does not act as a fiduciary for the insured. A Florida court does not have to accept these decisions as binding precedent, but a court will likely find these decisions to be persuasive.

AUGUST
Tech Smart!
According to technology researcher Gartner, Inc. the four leading data initiatives in 2010 were: data standards, improving incoming data quality, customer data integration, and analytics and business analytics. Gartner predicts that by 2012 investment in data management and analysis technologies will increase by more than 20 percent among property & casualty and life insurers.

Technology in the hands of consumers also is changing the buying landscape. As Ivans, Inc. discovered in its 2011 Insurance Agents, Carriers & Technology Survey, 43 percent of agents surveyed thought the most threatening issue to their bottom line was “a customer shopping around for more quotes,” while 19 percent said it was “increased Internet sales on carrier websites.”

In My Opinion: Why Florida Chose NIMA
Under NIMA it will be the states (and elected officers representing these states) that will ultimately manage and administer this agreement. One of my greatest concerns about the SLIMPACT agreement is that it currently proposes allowing some of the members of the “Operations Committee” to be from the insurance industry and law firms. This would allow private entities to directly manage one of state government’s core functions: tax collection. NIMA allows the states to retain this authority.

Getting the Word Out on Subrogation
Simply put, subrogating a claim means finding out who should be held accountable for an accident. It is based on supporting the principle that people are responsible for their own actions. The insurance process is based on the foundation of correctly assessing losses, both the potential for loss and an analysis after a loss occurs. If subrogation were not available, the actual cost of insurance would rise in part because there would be no mechanism to prevent the insured from collecting from both the insurer and the party responsible for the same loss.

SEPTEMBER
Keeping What’s Yours
“A CGL policy does more than just indemnify the insured for a judgment entered at the end of a long court case,” explains Joseph Mathieu, assistant vice president of middle market commercial general liability and umbrella underwriting for The Hartford. “For a covered claim, the policy also provides the insured with a legal defense once a lawsuit has been filed. In today’s environment, the costs associated with defending a lawsuit can be quite sizable and can pose a financial risk to a business in its own right.”

Is Citizens’ Rate Hike Backlash a Case of Buyer’s Remorse With SB 408?
Earlier this year, Florida lawmakers vowed that they were finally taking the necessary steps toward fixing the state’s battered property insurance market. In their 2011 legislative session they passed a comprehensive property insurance bill that was meant to help insurers deal with some of the cost drivers impacting the market. Now, just a few months later, a number of politicians—including several who backed the new law—are upset with some of the provisions that are being carried out.

Agency Perpetuation From the Lender’s Perspective
Perpetuation is an option only for well-run, profitable, and growing agencies. If your agency is not a good performer, it is unrealistic to expect your younger producers to “bail you out” with an offer. However, businesses with reliable, recurring revenue will almost always have an opportunity to improve their operations if they are professionally run and managed with a daily focus on growing value. The best-conceived perpetuation plans that yield completed transitions share some common characteristics.

OCTOBER
The Dollars and Sense of Workers’ Compensation
Historically, NCCI divides losses into primary and excess portions, with a longtime split point with a $5,000 cap.

The NCCI has proposed changing that primary loss cap beginning in 2013, the first such change in 25 years. The anticipated change—if approved—is expected to more than triple the current cap by 2015.

This gradual increase over 3 years is intended to compensate for the increased claims amounts over the past years. While the optimum goal for employers will still be zero accidents and a mod of 1.00 or lower, the change is expected to bring an immediate and significant mind-shift about the impact of losses. By 2015, when the phase-in is complete, approximately $17,000 in claim costs will be factored into mods at 100 percent. This amount will be indexed for inflation for years after 2015. The result is premiums for companies with higher-than-average losses will increase, while companies with better-than-average losses will be reduced.

Insurance Commissioner Kevin McCarty Sinks Citizens’ Rate Hike Request
A 45-day regulatory drama that began with Citizens Property Insurance Corp.’s triple-digit sinkhole rate increase proposal on August 3 ended with Florida Insurance Commissioner Kevin McCarty’ s eleventh-hour denial on September 19. The prequel for the face-off goes back to the 2011 legislative session.

A Conversation With Florida Surplus Lines Association President Roy Fabry
We do not believe that Florida needs an influx of new carriers. The only area in which Florida has a problem is in homeowners’ insurance. If the playing field is made even by bringing Citizen’s rates to where they should be and making Citizens what it was intended to be—the carrier of last choice—there wouldn’t be a capacity problem in that market.

NOVEMBER
Going Green
As the ability to more accurately underwrite exposure and establish prices for environmental insurance has improved, the field of competitors has enlarged. “Within the last 6 years the number of carriers in the U.S. market has increased from about a half-dozen to about three dozen,” says Kristen Sebesky, assistant vice president of strategic marketing and distribution for the environmental division of Chartis. “Recognizing that environmental insurance can be a profitable line has led carriers to be more creative and get into the game. We definitely have seen an increase in competition.” And while the increased competition generally is good for the market, it also can create some operational risks.

A Solution to PIP Fraud
Sadly, the Florida Legislature did nothing to address PIP fraud in the 2011 session. Representatives and senators went before the media to declare that PIP and accident fraud were major issues and that they were committed to eliminating abuses. Yet for all their talk, they passed none of the legislation important to the Florida insurance industry. Most bills died in committee, and the few that made it to the floor were either watered down or voted down.

I see a different solution to PIP fraud, one that depends less on legislators and more on the insurance industry and consumers. As insurers, we need to direct our time and money to cleaning up the streets and the courts.

Researchers Like IKE
Since 1975, the Saffir-Simpson scale, with its five distinct categories for characterizing hurricane wind damage, has been the guidepost by which local authorities and coastal dwellers decide how to respond to an approaching storm. It has been a good tool for alerting people to possible impacts from storm-force winds, but it overlooks other hurricane-related impacts that are more devastating, such as storm surge and tornadoes. A newly patented hurricane scale hopes to change that. Called the Integrated Kinetic Energy scale (IKE), it predicts the potential destruction for both wind and storm surge.

Ten Steps to Successful Cross-Marketing
The average age of the independent life agent is mid-50s, and that will continue to increase over the next decade; the industry is not enticing younger people to its ranks. However, as the independent sales force declines, the number of families needing professional life services will increase, creating a perfect storm of opportunity.

DECEMBER
Our final issue offers insight from industry experts Lynne McChristian of the Insurance Information Institute; William Stander of WHISPER, William H. Stander Public Relations, Inc.; and Fred Karlinsky, Katherine Scott Webb, and Richard J. Fidei of the law firm Colodny, Fass, Talenfeld, Karlinsky & Abate. Enjoy.