A New Approach: Florida Agents’ Association Makes Big Investment in Startup Insurer

The Florida Association of Insurance Agents, the largest agent group in the state, this spring took the unprecedented step of investing in a startup insurance carrier, a move designed to help keep agents in the game and bring more capacity to the Florida market.

Officials would not reveal the dollar amount of the investment, but executives with FAIA and with Sypher Insurance, the tech-heavy reciprocal homeowners insurer that plans to launch later this year, called it “impactful” and “significant.” FAIA will be a minority investor in Sypher, which aims to raise at least $35 million before its November launch date.

“Overall, I think it’s a good thing,” said Rob Norberg, owner of Arden Insurance Associates, an agency in south Florida.

Industry leaders said they had not heard of agents or agency groups investing in a carrier, anywhere in the U.S. But in Florida, a market still grappling with big loss expenses, elevated premiums and the exit of multiple carriers in recent years, it made sense for the 2,000-member FAIA to take matters into its own hands, said Kyle Ulrich, association president.

“Our mission at the association is to promote the growth and perpetuation of independent agents,” Ulrich said in April. “If there are companies committed to that distribution channel then it behooves us to help them do that.”

In fact, the association’s board of directors had been considering such a partnership for the past few years and has met with a number of companies. Only in late March did Sypher approach FAIA leadership, then made a pitch to the board.

“There was a lot of vetting, a lot of meetings, a lot of questions, but in the end, they said, ‘absolutely, this is a game changer and we would like to get behind you guys,'” Crystal McInnis, chief revenue officer for Sypher, said in an interview with Insurance Journal.

McInnis and other Orlando-based Sypher execs are well-known to FAIA members and the Florida insurance world. Sypher has made a name for itself as a reinsurance advisor and consultant, securing coverage for a number of Florida carriers. Before founding Sypher, company CEO Subhashish Dutta co-founded Gemini Re, an insurance-linked securities asset management firm, and was managing director and head of R&D at Guy Carpenter.

Katelyn Elsemiller, director of underwriting for Sypher, and Laura Johnson, chief product and underwriting officer, were both with Olympus Insurance in Florida for a few years.

Unlike other recent startups in Florida, Sypher has no plans to build its book on takeouts from the state-created Citizens Property Insurance Corp. That may come as a relief to some agents, who have said that takeouts can be burdensome and take time away from writing new business, especially when policyholders don’t agree to the switch.

Sypher has a target of 20,000 policies in force within a year of launch, Johnson and McInnis said.

And while the company will keep human agents at the core of the business, it will also rely heavily on artificial intelligence and machine learning, from quotes and binding, to claims handling and underwriting — and knowing what coverages to avoid, Dutta said. Machine learning, combined with human oversight, will also be used to produce communications with stakeholders, he noted.

Sypher will also be hyper-focused on data points to improve outcomes, including measuring adjuster performance, finding bad actors and determining the life cycle of claims.

“The industry has been two steps behind on identifying loss trends that are really affecting things,” McInnis noted. “With data and machine learning we hope to see, in real time, what are the outliers? Is something an anomaly or is it becoming a trend?”

The reciprocal has no plans to require binding arbitration to settle claims disputes, as a few Florida carriers have built into policies in the last two years. But officials would not be pinned down on how specific or extensive Sypher policies’ roof endorsements may be. Several Florida carriers have tightened roof endorsement in recent years, excluding coverage for roofs older than 10 years.

Another key question is how many agents will be appointed with Sypher. McInnis and Dutta said the company will move slowly with appointments, but will allocate a certain amount of capacity to FAIA for its IMS Market Access program for agents.

“We want to add to agents as we go and slowly build the end force rather than run out of capacity in three months, which you often see with startups,” McInnis noted.

The news about Sypher broke a few days before the Florida Office of Insurance Regulation put out a bulletin noting that things are looking up in the long-stressed Florida market, with eight new property/casualty carriers approved in the past 18 months.

The FAIA investment in Sypher apparently is not born from a feeling of desperation about insurance agents losing their livelihood to direct distribution, online quoting and automation. The number of insurance agents in Florida has actually grown significantly, from 33,360 in 2020 to more than 39,430 in 2022, the U.S. Bureau of Labor Statistics reports.

Agency heads and Sypher leaders argue that agents provide a better way to distribute products, improve sales and vet properties. And greater capacity in the tight Florida market is considered key to agent growth.

Still, not all agents and brokers were in favor of the move. Some have warned that it will alienate longtime carrier partners and could complicate things for agents who don’t always agree with carrier actions.

“It puzzles me that an agent association would use its resources to compete with the very partners who support it,” said Lori Augustyniak, president of the Professional Insurance Agents of Florida, a separate agent group. “PIA would not and will not ever consider such a move.”

Others have wondered if a successful Sypher will pay dividends to FAIA members, or, conversely, if members could be held liable if the insurer goes under. Ulrich declined to comment on that.