Florida Agents’ Leader Grady Cites Progress, Disappointments on Reform

For those in the industry, Florida’s recent legislative session was a long march as they tried to navigate through a process that initially promised much in the form of a new governor and strong pro-business majorities in both the House and Senate. Armed with an agenda that included property reform, tort reform and a high-profile push to overhaul the state’s no-fault auto law, the industry set the bar high.

But while lawmakers did accomplish some major reforms, especially in the area of private property reform, on the other side of the equation they failed to tackle the state-backed Citizens Property Insurance Corp. As the session came to a close, for many in the industry there was a sense that lawmakers had fallen short, and the results were incomplete at best.

Florida Association of Insurance Agents President Jeff Grady is no stranger to the legislative process having spent more than a decade watching elected officials come and go and the industry’s fortunes rise and fall. Now since the legislature finished its business in Tallahasse, he has had time to look back and assess what was and was not accomplished and what that may mean for the industry. in late May, Grady took some time out to speak with the Insurance Journal to offer some of his views on the session and the path ahead.

What is your overall assessment of the legislative session?

Grady: The property industry really can see it no other way than being a success. The main property bill had been vetoed twice before finally making it across the finish line, and that is progress. What obviously didn’t happen is the other half of that which is reforming Citizens Property Insurance, and that is disappointing. But those are very big issues, and those who have been around the process know it’s pretty unlikely you can get all of that at one time.

There were other issues — no-fault reform, tort reform — but there is only so much lawmakers can do in a 60-day session, and when they are working on property full time, there’s not much time to look at other issues.

How do you view the property reforms and do you think they will bring more companies to Florida?

Grady: It was more of a recitation bill for existing carriers. You would have to get the Citizens’ situation solved before you could talk about any meaningful capital reformation in Florida. Right now, Citizens is growing rapidly. In the last week seven carriers have shut down because of concerns over reinsurance because of new catastrophic modeling. So the disparity between the private market versus the government-backed insurer is just going to continue to grow.

The carriers in Florida desperately needed the property bill to address the sinkhole fraud, but nothing about that is a lure to capital when companies looking to come in the state know they are going to have to compete against this super company with heavily subsidized rates.

What impact will the property bill and the failure to reform Citizens have on agents?

Grady: Because Citizens is competitive and attracting agents and some agents like with State Farm have no market, Citizens is growing in some cases due to the population of its agents. Other agents are trying not to send business to Citizens, but they have to compete against those other agents who are using the insurer’s low rates as a tool.

This past week, I visited some agents who have markets and they are telling me they are trying to avoid sending business to Citizens, but when there is a concern over rates they know that is where the business is headed.

You mention that reinsurance is a growing concern, especially with the revised catastrophe model 11 developed by Risk Management Services (RMS). What are you seeing in the market?

Grady: One company sent a message to its agents stating the problems in the state include premium losses and sinkhole losses, but they went on to say that the recent changes in hurricane models have had a significant impact on their rate adequacy. The new hurricane models have increased expected hurricane losses in some territories by high-double digits, and in some cases triple-digits and this is an overnight change.

Now, the Florida Hurricane Modeling Commission has not approved the use of the new RMS model, but that is not necessarily the way the world revolves. [Editor’s note: Since this interview, the Florida commission has approved the RMS model.] Rating agencies are dictating part of this, too. I think there are carriers right now over in Bermuda, over in London, shopping for reinsurance and those prices are indicating the use of that model, and what it cost now to cover that same book of business, is 50 percent higher. So I think a lot of companies are in a wait-and-see mode. But there is no doubt that this is having an immediate impact and carriers are shutting down because of it.

There was a big push to reform the state’s personal injury protection auto insurance. But even with the backing of consumer groups, state officials, and the industry, it fell short. Why?

Grady: I think PIP failed in part because it is an extremely large trough that a lot of interests feed off of. You also had a lot of carriers making property their priority and their attention was diverted from the auto market. And the folks on the other side of PIP reform, they fight hard. I don’t think it had anything to do with merit of the issue; you had regulators supporting it and a lot of statistics that were hard to debate against. But it came down to priorities, the strength of the issue and a feeling that will get them next time.

Was there anything agents did get out of the session that wasn’t necessarily high-profile?

Grady: We got several things that were below the radar. Acquisition costs are no longer directly or indirectly approved by the Office of Insurance Regulation. When rates were moving back up after the hurricane years, regulators were telling carriers to moderate rate increases by lowering agents’ commissions. I don’t know if that if that is necessarily right or wrong, but what I do know is we believe it should be up to a carrier how they acquire a policy, whether it is through direct advertising or uses agents. The price of that is ultimately decided in the market, and we don’t believe regulators should be allowed to tell companies what they can be paid, and that was addressed in the property bill.

There were two things about Citizens that did get done and one is a notice on policies informing clients of the possibility of deficit assessments and they will be higher than in the private market. That was coupled with a provision that Citizens’ assessments would follow consumers whether they stay in Citizens, and that is a big change. Before Citizens’ policyholders could avoid assessments by switching to a private company, and that no longer can take place. Hopefully, that will remove some of the tools that Citizens has that allows it to compete out in the marketplace.