Florida Agents Sound Alarm Over ‘Perilous’ Property Market

Insurance agents, a former insurance commissioner and a consumer advocate have sounded an alarm about the property insurance marketplace in Florida that has seen four insurers get into financial trouble in the past year.

Citing the insurers’ financial woes as well as reports showing a majority of the carriers writing property insurance are cutting back on business, suffering underwriting losses or seeing their surplus erode, agents are calling upon state lawmakers to enact changes to aid struggling insurers.

Jeff Grady, president of the Florida Association of Insurance Agents (FAIA), and Bill Gunter, the former state insurance commissioner who is an independent agent and current chairman of the FAIA, spoke out recently about what Gunter said is a “perilous” situation.

The agents were joined by Walter Dartland of the Consumer Federation of the Southeast, who noted that the same groups urged a fix a year ago.

Although they did not specify a remedy, they offered support for changes that allow insurers to charge higher rates and legislation to scale back credits for homeowners who take mitigation steps.

Sen. Mike Bennett, R-Bradenton, and Rep. Bill Proctor, R-St. Augustine, have filed bills to deregulate residential property insurance rates. Their bills would allow home insurers to charge rates without the approval of the Office of Insurance Regulation.

FAIA stopped short of supporting the Proctor-Bennett bill as written but Grady said his group would support “whatever allows companies to earn a reasonable profit.”

Grady and Gunter questioned whether the OIR has been sufficiently diligent since 2006 in approving startup insurers that have since run into trouble, including one, American Keystone, which they said was run by a convicted felon.

“Four companies as far as we knew were financially sound and secure taken over by regulators. It is the job of the regulator to make sure that the financial underpinning of these companies is sufficient to pay their claims That wasn’t the case in these four that have gone away,” said Gunter.

“OIR may not have done its homework on some of these companies,” said Grady.

Coral Insurance and American Keystone have failed in the past year, while Magnolia Insurance is under state supervision but has not been liquidated. This month, Florida Peninsula Insurance agreed to take over policies of Edison Insurance, a move Grady said was taken because Edison was also on shaky ground. OIR, however, denied Edison was in any trouble and said the Edison acquisition was a business decision by Florida Peninsula.

Regarding the claim that a felon was behind American Keystone, the OIR said Keystone’s officers were vetted at original application but at a later date, American Keystone transferred control to a person who was barred from the industry in Florida. OIR says it took action upon learning of this development, “which ultimately concluded in the liquidation of the company.”

OIR did not participate in the FAIA press briefing but expressed concern while citing the economy as a major factor for struggling companies. “The Office is concerned that several insurance companies have experienced financial difficulties in Florida,” Jack McDermott stated in an email to Insurance Journal in which he reiterated comments by Insurance Commissioner Kevin McCarty in a September report to the Florida Cabinet in which he acknowledged that insurers in Florida are experiencing difficulty, but said this is not a condition unique to Florida.

He reported that of 21 of 29 start-up companies, six experienced underwriting gains during the first six months of 2009, while 15 suffered underwriting losses. Of the 210 writers “with a significant presence in the residential markets in Florida,” 60 reported declines in surplus during the first six months of the year and 102 posted underwriting losses based on national results.

McCarty said the experience of the startups is “generally consistent with the financial performance of other residential property insurance writers in Florida, and around the nation.” He suggested that all new carriers experience initial losses, which may be due to start-up costs, organization of an agent plant, and other overhead.

McCarty said that the companies experiencing difficulties have blamed their increase in losses on premium reductions from the full implementation of mitigation discounts; fraud; increased reinsurance costs; replacement cost methodology and reported sinkhole claims.

“The companies have indicated the majority of these problems have been exacerbated by the weakening economy,” McCarty told the Cabinet.

He said an economic recovery “may help reduce many of the problems property insurers are now encountering.”

FAIA’s Grady took issue with McCarty’s report on 210 carriers, maintaining that 98 percent of the state’s property insurance market is effectively written by 73 private carriers plus the state-backed Citizens Insurance and the others are insignificant players. An FAIA report found that 44 of these 73 were losing money as of the third quarter and a number showed surplus declines.

Of the 73 carriers, agents said many of them are taking smaller percentages of the market and others have not grown beyond their start-up phase. They have “flatlined” in terms of accepting more business, according to Gunter.

The agents noted that losses are being reported, even though the state has not had a major hurricane in several years. “They should be building reserves now,” said Gunter.

Just as State Farm policyholders will soon see rate hikes under a deal worked out with McCarty, Grady said the solution could mean higher insurance prices for all property owners.

“The only thing worse than high-priced insurance is no insurance,” said Grady.