Monday October 14, 2013
Private Market Ingenuity – Always the Best Solution

Since our last newsletter was published, the flood insurance crisis has “flooded” the public stage and the pressure to find solutions has increased geometrically. While I’m a firm believer that government has its role in protecting our nation and fulfilling other constitutional requirements, it rarely finds workable solutions to our most pressing problems without the bold and courageous leaders in our business communities, such as the insurance industry, who provide creative and well thought-out plans to help chart our course to navigate those problems. The current dilemma of skyrocketing NFIP rates for many Floridians is being addressed, as an example, by well-thought out recommendations and potential solutions coming from our industry leaders standing before legislative committees. I am very confident that the flood crisis will be addressed by a highly effective, free enterprise solution that serves everyone’s best interests. Now, let’s take a look at many of the insurance issues vying for attention during the past couple of weeks……
Finding A State-Based Flood Insurance Fix Remains Major Focus Of Insurance Committee

Tuesday 10/8/13- The Senate Banking and Insurance Committee held its second Fall meeting in advance of the 2014 Regular Session. The Committee meeting primarily focused on hearing presentations and testimony from regulators and industry leaders on possible state solutions to the federal flood insurance crisis. The problem is largely being caused by rising rates being imposed by the National Flood Insurance Program (NFIP) as it implements the federal Biggert-Waters Insurance Reform Act of 2012 (BW12). There are approximately 2 million Florida policies in the NFIP with 87% of those at the full risk rate; however, this leaves a significant number of our flood policyholders facing major rate increases. At the request of Committee Chairman David Simmons, the Office of Insurance Regulation (OIR) provided a brief overview of the federal flood insurance program and the probable impacts of BW12 on Florida policyholders. Rebecca Matthews, Deputy Chief of Staff for OIR, noted that the Office has been contacted by a number of surplus lines insurers expressing interest in possibly writing flood insurance for homeowners. Matthews went on to say that an initial program of this nature might be ready for launch prior to the 2014 Session. Of particular interest during the committee meeting, however, was personal testimony by former state Senator and President of Security First Insurance Company Locke Burt. Burt stated that he believes there would be a great deal of industry interest in the writing of flood insurance by admitted property and casualty insurers if they can get the necessary form and rate flexibility from the OIR and legislative approval to utilize private flood models. Quoting directly from a draft FEMA study regarding private market alternatives to the federal flood insurance program, Burt said that rating and form regulation is the major impediment for private insurers attempting to enter the flood insurance market. He further noted that billions of dollars in private capital is available for insurers in Florida if you give the private sector rate, form and modeling use flexibility. Senator Burt did caution the committee that even if a viable private flood insurance market existed in Florida or one is established, homeowners facing drastic rate increases from the NFIP should not expect dramatically cheaper flood premiums. “I don’t think the private sector’s first choice is homes under-rated by the NFIP,” he said. Burt went on to note that an insured paying $500 a year for flood coverage through NFIP and facing a rate increase to $5,000 under Bigger-Waters might get coverage (from a private market insurer) for something between $500 and $5,000. As it recommended on September 25th to the House Subcommittee on Insurance and Banking, Security First also recommended that the OIR be requested to provide a report on the statutory and regulatory hurdles which could hinder the private insurance industry from writing flood policies in this state. Senator Burt seemed to indicate that such a report is necessary in order for private insurers to truly assess the feasibility of establishing a private market flood insurance alternative. Also speaking on Security First’s behalf, former Representative Don Brown noted, “Insurance investment capital isn’t afraid of risk, it’s afraid of uncertainty.” In addition to exploring the feasibility of creating a private market for obtaining flood coverage, the option of requiring Citizens Property Insurance Corporation to cover flood risks when no alternative to NFIP coverage exists came up. However, all of the speakers appearing before the committee, and Chairman Simmons, agreed that the preferable option would be to entice private insurance companies to provide flood insurance coverage. Simmons also commented that if Congress does not delay the flood insurance rate hikes and the private market cannot move fast enough to establish an alternative, lawmakers would look for a state solution to help homeowners facing exorbitant insurance costs.
OIR Not Waiting For Legislative Direction To Establish Private Market Flood Insurance Guidelines
Wednesday 10/9/13- In response to numerous media inquires after Tuesday’s Senate Banking & Insurance Committee Meeting, which focused on how Florida might sidestep the federal flood insurance program’s major rate hikes, Commissioner McCarty acknowledged upcoming guidelines for insurers to request approval to issue primary flood insurance coverage. House and Senate committees on insurance were presented a recommendation that the Commissioner’s office produce a study identifying insurer statutory and administrative rule hurdles if insurers sold flood policies as an alternative to NFIP flood coverage. The OIR guidelines will establish a framework for the approval of flood insurance forms and rates, in addition to minimal financial requirements insurers must meet in order to write this coverage, the Commissioner said in a statement. However, House Insurance Subcommittee Chairman Bryan Nelson is questioning whether private insurers can act quick enough to step in for the NFIP, saying, “I don’t think anything is off the table.” He went on to say “The big problem we have is we don’t have enough information to base a decision on and until we have expected loss ratios, I don’t think the private sector is going to jump in.” The pressure on state policymakers and regulators to quickly create a state-based solution to the major rate hikes mandated by the Bigger-Waters Flood Insurance Reform Act of 2012 (BW12) has “doubled down” recently. Legislation has been filed in Congress to delay the impact of rate hikes, and on Thursday, October 10, Florida’s Attorney General and Governor agreed to file a “friend of the court” brief supporting Mississippi Commissioner Mike Chaney’s petition for a temporary restraining order. Representatives of the real estate industry have made it clear that BW12 mandated rate hikes are having a chilling effect on Florida’s slowly recovering market and if left unchecked, could have devastating economic results.
Citizens CEO Gilway Reports On Drastically Increased Water Loss Claims

Tuesday 10/8/13- At the request of House Banking & Insurance Subcommittee Chairman Bryan Nelson, Citizens Property Insurance Corporation CEO Barry Gilway appeared before the committee to provide current data and information concerning the corporation’s non-catastrophe claims. As we have reported in two prior editions of our newsletter, Citizens is seeing an ever-increasing number of water loss claims and a drastic rise in associated litigation costs. Gilway’s presentation showed that 67 percent of the insurer’s non-catastrophe losses from January 1, 2009 through the end of 2012 involved water claims of some type. The data further revealed that 75 percent of Citizens’ total claims involve purported water losses. He also provided committee members with category break-out data regarding the types of water loss claims filed during the 1/1/2009 through 12/31/2012 period as follows:
•43 percent related to routine/normal water losses
•24 percent related to wind-weather caused roof leaks.
•Subcategories of water claims were broken out as follows:
•66.5 percent due to plumbing breaks/leakage
•23.5 percent due to other causes
•5 percent due to sewage or drain backups
•3 percent related to accidental discharge
•2 percent due to flood and
•0.16 percent caused by sprinkler leakage.
CEO Gilway also noted that when analyzing loss and adjustment expense ratios on non-cat claims for the entire state and then by county/region, southeast Florida (Palm Beach, Broward, Dade and Monroe Counties) has incredibly higher loss ratios. He went on to note that the fundamental issue facing the state-run insurer is water claims in the southeast portion of the state. The loss ratio there is three times the remaining areas of the state. Gilway not only pointed out that water claims are way up, but claims litigation has also drastically increased. Ninety-two percent of Citizens’ litigation for the entire state originates in Palm Beach, Broward and Dade Counties and primarily involves water related claims and involving the issue of “sudden and accidental” leakage verses long term leakage. As we have also reported on in recent months, the corporation has been working to address the increasing water loss claims issue and previously established a highly skilled internal review team to closely evaluate and scrutinize each such claim. It will also be proposing a managed repair program which would be voluntary but offered at lower rates. The initial voluntary program is scheduled to begin during the first quarter of 2014 and Gilway said that Citizens will seek statutory authority for a pilot mandatory managed repair program during the upcoming regular session.
House Subcommittee on Insurance & Banking Receives Updates On Real Estate and Lending Picture

Tuesday 10/8/13- John Sebree, Vice President of Public Policy for the Florida Realtors®, gave the House Subcommittee on Banking & Insurance a high-level overview of Florida’s real estate market conditions in order to assist the committee in gauging the state’s current economic environment. Sebree reported that August was the 20th month in a row his association has seen an increase in the average price of a single family home. He reported that the average price for such a home was $175,000, 31 percent greater than the average price in August 2012. A 12.5 percent increase in the number of home closings was also noted over the number in August of last year. Even though Mr. Sebree had considerable good news to share, he also waved a caution flag concerning a number of issues creating problems for the real estate market recovery. He mentioned a state-wide survey his association conducted of its members in August and September asking real estate professionals for a short list of the major issues standing in the way of increased sales production. Over 60% of survey respondents noted that the availability and cost of property insurance was the major factor they faced in improving real estate sales. Mr. Sebree also said that the recent federal flood insurance crisis and its uncertain outcome will likely have an additional chilling impact on the market. The Florida Realtors’ spokesperson went on to note that the financial/lending industry has overcompensated and that lending remains way too tight. “Today, you almost have to show you don’t need a mortgage in order to qualify for a mortgage” said Sebree. To demonstrate the problem, he reported data showing that since 2007 mortgage pre-approvals have dropped by more than 43 percent. Also speaking before the committee was Anthony DiMarco representing the Florida Bankers Association. Mr. DiMarco commented that although home mortgage lending is considerably tighter than it was prior to the economic collapse, it is not too tight and that the majority of more stringent mortgage underwriting guidelines are a direct result of requirements contained within the federal Dodd-Frank Act and corresponding regulations. He pointed out that Florida remains number one nationally in mortgage foreclosures; however, some improvement is being seen as the number of Florida mortgages which are 30, 60 or 90 days delinquent are on the decline. DiMarco noted, however, that corporate borrowers remain extremely cautious due to general economic conditions, implementation of the Affordable Care Act and other factors. Another concern for mortgage lenders operating in this state is that in 2012 Florida continued to lead the nation in the frequency of mortgage fraud with Nevada and Arizona coming in second and third, respectively. In fact, Florida led the way by a large margin, with eight times the number of expected investigations, according to the LexisNexis Mortgage Fraud Index. Moreover, many community banks have left the mortgage lending market due to the complexities and costs associated with routine compliance and examination requirements, in addition to the major additional compliance requirements brought about by the Dodd-Frank Act. Many of these community banks simply could not afford to compete with larger lending institutions in the current regulatory environment. Mr. DiMarco summarized by noting that property, sinkhole and flood insurance issues, the possibility of increasing interest rates, Dodd-Frank regulations, low consumer confidence, general financial uncertainty and the federal government shut-down have all combined to create considerable headwinds to an improved mortgage lending environment in Florida.
Update: Florida Hurricane Catastrophe Fund Reimbursement Contract For 2014
Thursday 10/10/13- The State Board of Administration Trustees approved the filing of Rule 19-8.010, Florida Administrative Code, for publication/notice in the Florida Administrative Register. This rule will officially adopt the proposed CAT Fund Reimbursement Contract for the 2014 Hurricane Season as we reported in our September 30th newsletter. In that article we briefed you on the September 26th CAT Fund Advisory Council Meeting wherein the Council approved all proposed changes to next year’s contract. However, an additional change has been made to the contract which differs from the version voted on by the Council. The change relates to the exclusion limit concerning “Any individual policy written to solely cover personal property, scheduled or written under a blanket limit” dealing predominantly with one or more classes of collectible types of property. The limit was reduced from $5 million to $500,000. The specific language is located in Article VI-Exclusions (27)(b) as follows:
(b) Any individual policy written to solely cover personal property, scheduled or written under a blanket limit, with a policy limit equal to or exceeding $500,000 and which predominantly covers one or more classes of collectible types of property shall be exempt from coverage under the Fund. Generally such classes of collectible property have unusually high values due to their investible, artistic, or unique intrinsic nature. Additionally, such exempt policy may also include coverage for incidental items of personal property that may also be scheduled although such property may not be considered as a collectible. The predominant class of property covered under such excluded policy represents an unusually high exposure value and such policy is intended to provide coverage for a class or classes of property that is not typical for the contents coverage under residential property insurance policies. In many cases property may be located at various locations either in or outside the state of Florida or the location of the property may change from time to time. The investment nature of such property distinguishes this type of exposure from the typical contents associated with a Covered Policy.
As mentioned in our most recent newsletter, interested parties have until Friday, November 1, 2013 to request a hearing on this rule/proposed contract. If a hearing is requested, same would occur on Monday, November 4, 2013 at 9:00 AM in Tallahassee at the CAT Funds’ office, 1801 Hermitage Boulevard, Ste. 100, Tallahassee, Florida 32308. If no hearing is requested by the stated deadline, the rule will immediately thereafter be filed for formal adoption. We will keep you posted regarding developments.
Homeowners’ Policy & Claims Working Group Draft Report and Recommendations
In late September the Insurance Consumer Advocate’s office issued a revised draft report with recommendations to members of the Homeowners’ Policy & Claims Bill of Rights Working Group for additional comments and suggestions. This latest draft of the Working Group’s proposed final report addresses issues and makes recommendations in the following areas:
•Consumer outreach, education and advertising campaigns
•Insurance funded repair contracts
•Examinations under Oath
•Assignment of Benefits
•Alternative Dispute Resolution Processes (DFS Mediation Program, Neutral Evaluation statutes)
•Emergency Remediation Companies/Water Loss Claims
•Post claims underwriting
•Insurer Managed Repair Programs/Right to Repair clause
•Mortgage lenders withholding claim funds
•Fraud training for insurer underwriting and claims staff
•Creation of a Claims Bill of Rights for policyholders
•Limitation on the use of credit history in the claim denial process
It is uncertain at this point whether Consumer Advocate Robin Westcott will issue the Working Group’s final report prior to her departure from the position or leave that task for CFO Atwater and her yet-to-be-named successor. We will keep you posted on developments regarding the anticipated final report.
Fraud Division Investigation Leads To Conviction of Jacksonville Clinic Owner
Friday 10/4/13- After a lengthy investigation conducted by DFS Fraud Division Detective Dwight Murphy and Assistant State Attorney (ASA) Joe Licandro, a jury in Jacksonville convicted David Lopez of scheming to defraud more than $50,000, submitting false insurance claims of more than $100,000 and knowingly participating in an intentional motor vehicle crash. The insurance fraud investigation revealed that Lopez was the behind-the-scenes owner of Indian Rehabilitation Center, Inc. (IRCI), a state licensed massage therapy clinic that operated at 3636 University Boulevard in Jacksonville from March through October 2012. The investigation conducted by Detective Murphy and ASA Licandro revealed that Lopez’ clinic defrauded insurers of more than $228,000. Lopez utilized the clinic to provide nonexistent treatment to staged accident participants for injuries which never occurred. Individuals working for Lopez enticed people to stage automobile accidents and then seek treatment at IRCI. The investigation further indicated that on March 14, 2012, David Lopez and four additional people engaged in a staged accident in Duval County. Afterwards, Lopez filed a PIP claim through IRCI and the clinic was paid $35,000 for treatment supposedly provided to Lopez and the four other individuals. The state’s investigation also showed that Lopez put in place a straw owner of the clinic, controlled the clinic’s bank accounts, directed how to go about fraudulently operating the clinic and instructed others as to which insurers to target with fraudulent claims. In October of last year the Division of Insurance Fraud and state attorney’s office closed down IRCI and secured an arrest warrant for Lopez. After searching for about six months, detectives discovered Lopez hiding at a fish farm near Tampa. Lopez is one of over 30 individuals whom the state attorney’s office prosecuted in this case and additional prosecutions are on-going. Lopez is scheduled to be sentenced on November 22 and faces 45 years in prison.
Health Insurers Receiving Faulty Data On Federal Health Insurance Enrollees
According to recent articles by the Insurance Journal and other media sources, health insurers participating in the Affordable Care Act’s (ACA) health insurance exchanges are receiving faulty and incomplete data from the national health exchange database, which could signal that some enrollees won’t be covered even after they sign up for one of the available health coverage plans. Reports say while it’s unclear how pervasive the problem is, the reports from industry consultants are the first indication that technical glitches faced by consumers attempting to enroll in ACA health plans may also be adversely impacting participating insurers. Those knowledgeable of the situation say that the insurers are receiving data files that cannot be opened or have so much missing information about new enrollees they are unusable, forcing some insurers to correct entries by hand. Since the exchanges opened on October 1st, potential enrollees have incurred significant problems attempting to access the web-based marketplaces, which have been overwhelmed by millions of visitors. Even though additional capacity has been added to the system meant to serve consumers in 36 states, the ACA’s website continued through early last week to deliver error messages to potential enrollees attempting to review various health plans and create accounts. We’ll continue to monitor the situation and provide updates as we learn more.
Compliance Reminder: Multi-lining Good For The Bottom Line But Agents Shouldn’t Go Too Far
A popular and profitable sales practice for many years now is one where agents carry multiple license types and appointments so they can access diverse markets potentially saving their clients time and money by offering insurance products to cover various property & casualty, life and health risks. Let’s face it, consumers who rely upon a highly experienced agent and agency to take care of all or most of their insurance needs likely will have more peace of mind and less stress in their daily lives. However, appointing insurers and agents need to be aware of certain legal limitations in order for avoid potential violations of the state’s Insurance Unfair Trade Practices Act. Insurers and agents should strictly refrain from, for example, requiring clients to bring their auto insurance coverage to the table in order to insure or continuing insuring their homes. The Insurance Code provision most directly addressing this issue is Section 626.9541(1)(x) 3. titled, “Refusal to insure.” The statute states, “In addition to other provisions of this code, the refusal to insure or continue to insure, any individual or risk solely because of the insured’s or applicant’s failure to agree to place collateral business with any insurer, unless the coverage applied for would provide liability coverage which is excess over that provided in policies maintained on property or motor vehicles.” In the past, agents under investigation by the Department’s Division of Agent & Agency Services, Bureau of Investigation, have told investigators about sales quotas where agents were required to write a certain number of auto policies in order to write one homeowners policy. While sales quotas may not violate the Insurance Code, agents have said the pressure to meet such quotas have influenced their decision to require clients to purchase certain policies in order to obtain coverage on other risks. The penalties that the Department of Financial Services can impose upon agents for violations of the Insurance Unfair Trade Practices Act are severe and can, if enough counts
and other factors exist, lead to revocation of licensure. The stated base penalty for requiring a consumer to place collateral business is 6 months suspension per count/occurrence. This and other penalties for Unfair Trade Practice violations can be reviewed by reading Rule Chapter 69B-231.100, Florida Administrative Code. Please let us know if you have any questions about the statute concerning refusal to insure or other provisions of the Insurance Code. As always, we would be happy to provide assistance.

October is Breast Cancer Awareness Month
As many of you know, October is Breast Cancer Awareness month. In our neighborhood, the Tallahassee Democrat sponsored “Paint the Town Pink” on October 3rd as a community wide show of support for breast cancer research. LMA proudly supports all those who have battled breast cancer, those who are currently battling, and those who are always working towards a cure! Below is a picture of LMA ‘gone PINK after hours’.
So we leave you for a week or so with much to think about. We are thinking hard about the challenges ahead as we prepare for the 2014 Legislative Session. We know you know that the entire team at LMA looks forward to hearing from you always and needs and appreciates your input. As we mentioned in our first paragraph, it takes the hard work of all the folks involved in our multi-faceted business to come up with viable solutions to the problems we face. We love what we do and every day is exciting for us. Thank you as always for allowing us to participate with you and for you!! My very best, always……Lisa

lma goes pink