We Are Proud of Our Olympians
|I know that many of our readers have been glued to their televisions and/or computers over the last few weeks, watching our U.S. Olympians with proud hearts. I can think of no other event that brings the world together like the Olympic games. Talent, dedication and pure hard work are the back-story of every contender. And while the Olympics weren’t born in the U.S., we certainly are a dominant figure during the games. I am reminded of a paper I wrote in college, contrasting and comparing the original games with those of today’s world. I wanted to share a few current factoids on how it all began. It is fascinating to me, so hope you enjoy.
The ancient Olympics, which began in 776 BC, were primarily a part of a religious festival in honor of Zeus, the ruler of the Greek gods and goddesses. The festival and the games were held in a rural sanctuary site called Olympia, named after Mt. Olympus. The Greeks (only males were allowed in) that came to the Sanctuary of Zeus at Olympia shared the same religious beliefs and spoke the same language. The athletes were from every corner of the Greek world, coming from as far away as Iberia (Spain) in the west and the Black Sea (Turkey) in the east. A very interesting fact about those first games (and I remember this from my college paper) is that the athletes performed nude. This was to prevent intrusion from clothing during the competitions and the opportunity for the athletes to display their musculature. The ancient Games continued in Greece from 776 BC through 393 AD, and then 1,503 years later (1896) the first modern Olympics began in Athens, Greece. What we have today is the result of both the ancient beginnings of the games and what has transpired since 1896. There is so much more to share about the history and evolution of the games that I wish we had space here to cover. I am hopeful our bits of information will whet your appetites to do some of your own research. Meanwhile, GO TEAM USA. It is an exciting time!
Florida Registering Lots of New Voters
|According to the state Division of Elections, there are now more than 12.37 million Florida residents who are registered to vote. Over 300,000 of those have been added since the presidential primaries in March. That increase breaks down to 155,296 registering as Republicans, Democrats added 120,933 and the NPA count is up by 35,480. There are slightly more Democrats registered in the state with a current total of 4,690,721, and registered Republicans totals 4,431,400. The NPAs make up 2,913,948 of the voter rolls.
6 Days, 3 Hearings – Office of Insurance Regulation Is Busy
|Think about this – in a span of 6 days, the Office of Insurance Regulation (OIR) held three hearings to listen to speakers justify rate increases for 3 lines of coverage: long term care (about 95% requested increase), workers’ compensation (about 20% requested increase) and property insurance (Citizens Property Insurance ranging from 3% to 10% requested increase). There is a variety of justifications for the rate increases including an explosion of healthcare costs and longer life spans driving the long term care policy rate increases to supreme court decisions reversing current law. According to those speaking on behalf of the organizations seeking the rate increases, it appears attorneys’ fees are the key cost driver for two of three rate changes. For example, in the workers’ comp hearing, Lori Lovgren, Florida’s State Relations leader for National Council for Compensation Insurers’ (NCCI) testified that while only 6% of workers’ comp cases have a lawyer involved, these claims have costs associated with them that are 3 times that of claims where attorneys are not involved. This is similar to testimony during the 2016 legislative session where experts testified that water losses were three times as costly when it came time to pay a claim versus claims where no attorney is involved. With respect to Citizens Property Insurance, President Barry Gilway shared slides with OIR regulators that show the dramatic increase in litigation and the attorney fee demands associated with nominal water loss claims. See below for reviews of this week’s hearings.
Long Term Care – A Hot Topic in Miami
|On Friday, August 12, the Office of Insurance Regulation (OIR) held a public hearing to discuss double-digit rate increases for long-term care insurance policyholders. The hearing, held in Miami, gave MetLife and Unum insurance companies an opportunity to defend their requested rate increases with Commissioner Altmaier saying, “There are high passions,” at one point as he requested policyholders and speakers to be respectful. MetLife proposes an increase from 20% to 95%. MetLife’s actuary said the company requested the rate increases because of high “persistency” (policies that have remained on the books) and low mortality. These trends were cited to be prevalent among a majority of long-term care insurance companies. The bottom line is that Americans are living longer and in need of care in the later stages of their lives and this trend has escalated exponentially since these insurance companies entered the market. Calling the rate increases “necessary, justified and permitted,” MetLife indicated they paid more than $3.1 billion in claims since entering the long-term care market. There was discussion about how financially strong insurance companies who have losses in one line of insurance should handle those losses with Commissioner Altmaier commenting, “Clearly, MetLife as a whole is not struggling,” with a reference to trying to strike a balance between the rate increases being “offset by other lines of business that are doing well.” The company responded that its home state regulator will not allow product line surplus to be co-mingled and that each product line must “stand on its own.” The hearing also included the approximate 100% rate increase request from Unum Insurance Company with similar back and forth among the audience, regulators and company officials occurring during this portion of the hearing.
Workers’ Comp and its Potential $1 Billion Unfunded Liability
|The following Tuesday in Tallahassee, OIR shifted gears to Workers’ Compensation insurance, holding a rate hearing on a requested 19.6% overall hike by NCCI, a licensed rating organization authorized to file rates on behalf of about 250 insurers writing Workers’ Comp in Florida.
NCCI testified the increases are necessary because of recent Florida Supreme Court decisions and a reimbursement manual fee change. The court struck a cap on attorney fees in place since the 2003 reform, and also ruled payments to injured workers should be extended from their current two years to five years. The Florida Legislature is expected to take up the matter in next spring’s session.
The real cost-driver is attorney fees.
“According to Lori Lovgren, NCCI’s Division Executive for State Relations, “Although there’s a small number of attorney-involved claims, they represent a large percentage of losses. Attorney-involved cases are the ones most impacted by Castellanos,” she told Insurance Commissioner Altmaier and the OIR team of lawyers and actuaries.
But the biggest potential cost is outside of NCCI’s filing. Lovgren said the court rulings have created unfunded liability because they’re retroactive, which “could potentially exceed $1 billion,” she testified.
NCCI says its carriers have already begun seeing the effects through increases in reopening of older claims, delayed settlements, higher hourly fees (from $150/hr. to up to $400/hr.), higher attorney involvement, and harder to settle claims.
Public testimony included the Florida Chamber of Commerce, which cited Castellanos as a case where the injured worker received $800 and the trial lawyer received $38,000. Mark Touby, the trial lawyer representing Castellanos, responded “the $800 was the cost of medical care he initially received before being cut off on his third medical visit. He denied it’s an unfunded liability. “It’s insurance company profits that should have been paid as claims in wrongfully-denied benefits. Bad decisions by insurance companies shouldn’t be incorporated in future rates for employers.”
“If these rates go through, a house I’m charging $150,000 for today I’ll have to charge $167,000 for, which is pretty much my profit margin,” said Jeremy Stewart of the Florida Homebuilders Association. The Florida Roofing and Sheet Metal Contractors Association testified that the Workers’ Comp rate for a $40,000 salaried roofer will go up $1,500 under the NCCI request.
NCCI itself came under criticism by several private lawyers at the hearing who said it hasn’t been operating in a transparent way as required by Florida Sunshine laws in its rate setting and in its lack of consideration of the 2008 data period (a period of reduced costs) in developing its current rate request. Indeed, OIR asked NCCI about the exclusion of that data during the hearing, with NCCI Director and Senior Actuary Jay Rosen replying simply that he is confident in the data NCCI used in developing the rate request.
Commissioner Altmaier noted that the Florida Legislature enacted the current law in 2003 to stem years of double-digit rate increases. He said rates today are 60% less than what they were in 2003 as a result. OIR is expected to announce its decision on the rate request by early September, as the filing is effective October 1.
Citizens Rate Increase Request Driven By Increased Use of
AOBs, Attorneys, Adjusters
|Attorneys’ fees are also playing a role in a significant rate increase request by Citizens Property Insurance of Florida, at a time when overall rates should be coming down due to Florida’s storm-less decade. Citizens, the state’s insurer of last resort, is requesting a statewide average increase of 6.9% for HO3 policies, and 9.1% on average in tri-county South Florida.
Citizens President and CEO Barry Gilway testified at its OIR rate hearing last week that the hikes stem from increases in non-storm water claims and resulting lawsuits. The root causes are Assignment of Benefits (AOB) and representation at first notice of loss by attorneys or private adjusters.
“AOB has increased to a staggering level,” said John Rollins, Citizens’ Chief Risk Officer. “Costs are vastly exceeding premiums. 55% of statewide claims arrived with AOB in 2015. That dramatically drives up average claim costs. The root behaviors behind the trends aren’t changing as we’re still receiving 750-1,000 new lawsuits per month. Unless we can arrest and stabilize these cost trends, customers will see year after year of increases, limited only be the legislative glidepath of 10%,” said Rollins.
Citizens noted that last year it was experiencing increases in non-water claims only in South Florida. Since then, they’re occurring in other coastal parts of the state, including Tampa, the Panhandle, and Southwest Florida. “We thought water claims would level off – unfortunately we missed seeing this as a trend that would continue and grow,” said Rollins.
Citizens said it does expect to see cost savings from new product changes effective this past July 1, which limit emergency repairs to $3,000 without prior approval. Also, its new claims management contract with Lynx Services “will give us the ability to see what invoice amounts should be and will give support to our $3,000 limit and support if we need to go beyond that limit,” said Chief Actuary Brian Donovan. Citizens is also asking for rate hikes in its wind-only policies of 8.2% to 10.5%. It says success in depopulating these accounts has occurred only recently and those policies remaining will be those with historically significant inadequate rates.
The good news is that sinkholes – a big cost driver five years ago – has little new loss activity and is stable, requiring no rating changes. Commissioner Altmaier noted that Citizens has made great strides in reducing its number of policies to about 462,000, which reduces the risk of assessments on all insurance consumers in Florida. The company says its combined surplus and reinsurance levels mean it could weather a 1:100 year storm without additional assessments. The first of OIR’s decisions on Citizens’ rate filings are expected by month’s end.
Florida Population Report
|We read with interest the recently released “Florida Population Report” by Cushman & Wakefield, a global real estate services firm. The report was featured in Florida Trend magazine and reviews the economic impact on the state’s population trends. They covered population growth, employment levels, home values and retail sales activity in Florida’s eight major cities.
You can click on the links below to view the overall report for Florida, as well as the individual ones for the cities.
West Palm Beach
Florida Tagged as Having Nation’s Worst Drivers
|Earlier this month, what appears to be an internet-based consumer financial advice and decision-making firm, issued a report labeling Florida as the state having the nation’s worst drivers. The firm, SmartAsset, claims to assist consumers by providing information and counsel in the areas of home buying, life insurance, student loans, refinancing existing consumer loans, investments and retirement planning. The firm’s more recent work positioned Florida in last place as part of a new study which analyzed the number of drivers in each state, the number of DUI arrests per 1,000 drivers, percentage of insured drivers, speeding tickets and people killed per 1,000 drivers.
The firm’s researchers say each category in the analysis was given equal weight in the rankings, and Florida placed last behind Mississippi, Oklahoma, New Jersey, Delaware and Alabama. The company went on to note that the Southeast is a particularly dangerous place for drivers, with four states placing in the top 10 worst states for drivers. Additionally, Florida has the second-lowest number of insured drivers nationwide, with only 76 percent covered. Only Oklahoma has less insured drives, with 74 percent. SmartAsset also reported that Florida’s DUI arrests per 1,000 drivers were at 4.45. Researchers employed Google trends as a means of searching eight phrases around “speeding tickets” and “traffic tickets”. SmartAsset notes, however, that from the above data it cannot be firmly concluded that Florida drivers get more speeding and traffic tickets than drivers in other states. We will be interested to see if there will be any insurance industry responses.
Supreme Court Won’t Accept Wilma “Prompt” Notice Question
|The Florida Supreme Court recently declined to hear a Hurricane Wilma water damage claims dispute brought by Citizens Insurance after a 3rd District Court of Appeal ruling last year in favor of Miami-Dade County condominium owner Edie Laquer. Though Hurricane Wilma hit South Florida in 2005, Laquer filed a claim in 2009 after mold and other water damage were discovered in her rented condominium unit allegedly from a neighbor’s flooding problems. Citizens denied the claim, pointing to a policy requirement to provide “prompt” notice of claims…the claim was filed over 3 years post-Wilma and Ms. Laquer said she didn’t know about the damage until she reported it. We asked leading insurance defense lawyer Espe Briscoe of Diaz, Briscoe, Medina her thoughts about the case, and she shared that, “the specific facts of that case are where we should direct our focus. In this case, the insured and several others inspected the property searching for damage and found none after the hurricane but three years later found mold that was previously hidden and reported it to the carrier. The trial court found that it was late notice, apparently finding that notice did not depend upon the reasonable knowledge of the insured. The Third DCA found that the notice requirement turns upon whether and when an insured knows or reasonably should know that a loss has occurred. In this case, because the insured and several others investigated and found no evidence of a loss until three years after the Hurricane, the court found that whether the notice was “prompt” was a question for the jury under those circumstances. We believe that the holding in the case is specific to those facts and that it does not change the standing rule that if an insured has or should reasonably have reason to believe there was damage, then a delay in notice is not ‘prompt.'” Other lawyers LMA consulted about this ruling have shared similar opinions. We would be interested in your thoughts as well so will stand by to hear from our readers.
State Law Claims Are Proper Course for Certain
Flood Insurance Disputes
|A Tennessee couple that said they weren’t aware they were buying a home in a flood zone will be allowed to sue their bank and others for allegedly mishandling the flood determination paperwork. Michael and Beverly Harris sued Regions Bank, Nationwide Mutual Fire Insurance Company, and other firms involved for the mistake, saying they never would have bought the home if they’d known it was in a designated flood zone that didn’t allow full coverage for any losses.
The Harris’ suit was thrown out by a federal district court which ruled that the National Flood Insurance Act (NFIA), not Tennessee state law, has authority over the couple’s claims of negligence and breach of fiduciary duty. Not so, said a three-judge panel for the U.S. Court of Appeals for the Sixth District, which reversed the district court ruling, and allowed the Harris’ case to proceed. The ruling stated that NFIA preempts state-law claims for the handling of actual claims, but not policy-procurement claims by potential future policyholders.
The deed of trust for the property obligated Regions to ensure that the flood zone designation was correct, and that plaintiffs had proper insurance coverage. A month after buying the home, the Harris’ learned FEMA had issued a revised FIRM requiring purchase of flood insurance, but were sold a per-FIRM policy instead of the required post-FIRM policy to be fully covered. The mistake wasn’t caught until nearly four years later, when a flood submerged their home in 16″ of water and insurance didn’t cover all of the building and personal property losses.
The ruling (Harris v. Nationwide Mutual Insurance Co.) mirrors a similar one last year by the U.S. Fifth Circuit. The NFIA was created to create more affordable flood insurance and therefore often preempts claims that arise in state courts.
Additional Companies Settle in Death Master File Agreement
|Twenty companies in the past have agreed to settle with OIR as part of the death master file settlement agreement. As of August 4, 2016, four more companies have agreed for a total settlement of $3.4 million as part of a five state agreement: California, Florida, New Hampshire, North Dakota and Pennsylvania.
Hartford Fire & Casualty Group will pay $2.1 million, Securian will pay $625,000; Great American will pay $400,000, and Standard will pay $277,000, according to the Florida Office of Insurance Regulation’s release.
LMA has closely followed this issue when we first reported it in our legislative session newsletters (see January 25, 2016 edition) and the debate during the committee was fascinating. Then Commissioner McCarty and CFO Atwater were adamant that it made no sense for life insurers to use the death master file to cease payments under an annuity arrangement, yet not use it to determine death benefits. The life insurance industry did its best to educate state policymakers and at the conclusion of session there was legislation that passed that mandated life insurers go back many years in reviewing which of their insureds had passed away and if there is any death benefit owed to beneficiaries. This issue is ongoing and we will keep you apprised.
We Can All Go for the Gold
|By the time you read this newsletter, the 2016 Olympics will have come to a close. We are spoiled by having so many extraordinary athletes, as has been the case for many years. We all have been wanting the U.S. to come out on top; however, our pride isn’t only for our own athletes, but all those young men and women who represent their countries. It is an experience they will never forget, and one that reminds us that success is not always about winning. Success is really about working hard, staying committed and NEVER giving up. It’s something we all should strive for, regardless of the goal. That’s how we roll at LMA every day. We hope you do too.
Lisa and the LMA Team