By: Charles Elmore
Palm Beach Post
The Florida Senate is drafting proposals to shrink state-run property insurer Citizens and drive customers to private carriers. But ask Hope Leet if South Florida's private insurance market feels like a reliable sanctuary right now.
While she was helping her husband recover from a stroke, her Boca Raton-based insurance company refused to pay a $40,000 claim for water damage from a leaky air conditioner, she said. Then a letter said the company will drop her family's policy later this month to reduce "hurricane exposure."
"I was just devastated," said Leet, 73. "To have this company blatantly say we're not covering you - I take an insurance policy so when something happens they're there to cover you."
Among the top 10 property insurers in the state, private insurance companies including Florida-based "domestic" carriers collectively shed nearly 100,000 customers in the first nine months of 2012, the latest period available in a state database.
Companies often contend they lose customers because they can't compete with low rates at Citizens. But that wasn't the case with Leet. She said she wasn't coming from or trying to get to Citizens.
It's a side of the Florida insurance story that often gets little attention when talk turns to Citizens, labeled a "sick child" by Sen. Garrett Richter, R-Naples, at a recent hearing. A Senate bill filed Friday, SB 724,focuses on ways to get more customers out of the state-run carrier.
Hearings include grim warnings of potential assessments to Citizens customers and even other ratepayers if a severe catastrophe like a one-in-100-year storm exhausts reserves. To avoid such assessments, the favored remedy is to get customers to private-sector insurers, pronto.
Rarely mentioned: If all 1.3 million Citizens customers were transferred to private insurers immediately, the risk of assessments to Florida ratepayers would not disappear.
If insurers fail, claims covered
When private carriers fail, their claims have to be paid by the Florida Insurance Guaranty Association, which in turn has the power to charge assessments to property and casualty insurers statewide. The companies pass charges along to ratepayers.
A controversial report prepared by the state insurance consumer advocate's office last year reportedly found Citizens would not need any assessments after a one-in-25 year storm, but some private insurers could fail if the storm struck certain metro areas, creating an estimated $200 million liability for the guaranty fund. In other words, private carriers posed a bigger risk to the ratepaying public than Citizens in that scenario.
The consumer advocate's office later withdrew the report and declined public records requests for related materials, saying it was flawed.
Officials with the state's Office of Insurance Regulation called the report "erroneous," saying they do not believe such assessments can be accurately predicted.
"You can't anticipate what FIGA is going to need," said general counsel Belinda Miller, saying there are too many variables at work, including the difficulty of assessing risk information about carriers based out of state.
State officials say 91 percent of insurers in the state carry reinsurance - insurance that insurance companies buy - for a one-in-100-year storm. They say 96 percent indicate they're covered for a 1-in-80 year storm.
In theory, that means almost everybody's prepared even for storms more rare and awful than Hurricane Andrew in 1992. But in practice, property and casualty companies including home and car insurers go out of business after lesser storms, noncatastrophic losses, fraud and mismanagement or other financial woes.
Four insurers serving Florida went out of business in 2010, followed by nine more in 2011 and another in 2012, according to the guaranty association.
The association tries to get as much money as it can from the liquidated assets of insolvent companies, but it was forced to assess Florida ratepayers in 2006, 2007, 2009 and 2012. FIGA has paid close to $2 billion in claims since 2006, within reimbursement limits of $300,000 to $500,000 per home.
Citizens rated tops in state
Ratings firm Weiss Ratings LLC of Jupiter grades Citizens as the financially strongest property insurer based in the state. With a $6 billion surplus available to pay claims, Citizens gets an A+ from Weiss. Some national insurers get high marks too, but most are writing little or no new business in Florida. None of the state's homegrown insurers or "pup" subsidiaries of national carriers gets a recommended Weiss rating, meaning B plus or higher.
State Farm spokeswoman Michal Brower said consumers can check its rating with AM Best (ambest.com), but observed, "Given Florida's challenging property insurance market where insurance companies are often faced with deteriorating financial conditions, it is not a surprise for ratings to reflect a less than strong financial strength rating."
Some smaller companies are not rated by AM Best but Demotech Inc. (demotech.com), which is recognized by state regulators and mortgage-approving authorities. St. Johns Insurance Co. of Orlando, for example, gets an A rating from Demotech and "has continued to meet the standards and regulations set forth the by Florida Office of Insurance Regulation," a spokesman said.
But Weiss analysts say the risk of a carrier going out of business isn't the only consideration. Also important: whether companies are likely to pay claims without a hassle, renew policies or drop people. And that can be influenced by a company's size, resources and ability to grow, they say.
Leet said her company, Florida Peninsula Insurance Co., denied a $40,000 claim at her Vero Beach home because it was judged to be an "ongoing, prolonged" condition from a leaky AC. Her family countered with a contractor's report that said otherwise.
As her son Todd saw it, "Two weeks after my parents file a claim, the company refuses to renew their insurance - the only logical conclusion is Florida Peninsula is punishing my parents for filing an insurance claim."
Florida Peninsula said it does not comment on matters involving individual consumers. But its top executive in Boca Raton said the firm works hard to "keep rates down by paying only legitimate claims covered by the policy."
CEO Roger Desjadon said, "Do we have a business model that says, 'Let's get rid of customers?' Quite the opposite. Our retention in Florida typically runs about 83 percent. That's pretty darn good."
Florida Peninsula did not renew 3,166 customers in the third quarter of 2012, the latest period available in a state database, leaving it with slightly fewer customers overall, 122,214, than when it began the quarter, records show. Desjadon said nonrenewals can include instances where homeowners fail to pay premiums or sell their homes, for example, and not merely cases where the company chose to drop a policy.
Florida Peninsula's customer base has gone through cycles of growth and contraction in the past, records show, and it added about 25,000 customers, by Desjadon's count, toward the end of 2012 as part of a state program designed to shrink Citizens.
The company paid out less than 25 percent of its premiums for claims in 2011, compared to an average closer to 35 percent for all carriers serving the state, based on calculations from information compiled by Weiss.
Consumers can file a complaint with regulators if they feel a carrier isn't playing fair, but choosing not to renew policies does not necessarily mean the company did anything wrong, said Richard Koon, deputy Florida insurance commissioner for property and casualty. Some companies may reduce exposure to a level they see as appropriate for their reinsurance coverage, he said.
Required coverage for big storm
The reinsurance backing Florida companies is a major reason consumers should have confidence, said Chuck Grimsley, president of the Florida Property and Casualty Association, which represents a number of state-based carriers.
"All Florida insurance companies are required by the Florida Office of Insurance Regulation to maintain a combination of capital and reinsurance adequate to cover a one-in-100 year storm," Grimsley said. "Companies providing back-up reinsurance are typically the very large A-rated international companies such as Lloyds of London or Swiss Re. Floridians can be confident their claims will be paid."
Legislators have been discussing options to shrink Citizens that could raise its rates further, such as pegging premiums to an average of private insurers' rates instead of the current system where rate increases are capped at 10 percent a year. There's also talk of shrinking the Florida Hurricane Catastrophe Fund, a less expensive source of backup coverage compared with reinsurance from offshore private interests, in a move likely to raise rates across the state.
The notion that the problem is folks in South Florida aren't paying enough for insurance is ludicrous to residents like Jim Finnegan of Lake Worth.
"The continual rise in insurance premiums is one of the major reasons the working man cannot get ahead in Florida's stagnant economy," Finnegan said.
He says insurance of all kinds eats up a third of his family's income for two adults and a teenager.
"There is not much room there to save for retirement," Finnegan said. He said statistics showing Floridians pay $108 billion in insurance premiums, more than Texans and the residents of all but nine foreign nations, show the state has a problem.
Call it a crisis, he said - "because that is what it is."