Fidelity National Property and Casualty Insurance Seeks Overall 26.7 Percent Rate Increase; Citing MGA Fee, Florida Insurance Consumer Advocate Proposes 12 Percent
May 13, 2011
Yesterday, May 12, 2011, the Florida Office of Insurance Regulation (“OIR”) conducted a rate hearing for Fidelity National Property and Casualty Insurance Company (“Fidelity”). The company is seeking a 26.7 percent overall rate increase.
The hearing was conducted on behalf of the OIR by Mike Milnes, Deputy Director, Property and Casualty Product Review; Ken Ritzenthaler, Actuary; and Rhoda Johnson, Assistant General Counsel.
Representing Fidelity was Mark Davey, President and CEO; Larry Mortensen, Vice President, Pricing; Nancy Watkins, Principal and Consulting Actuary, Milliman Inc.; and Sheri Scott, Consulting Actuary, Milliman Inc.
The Office of the Florida Insurance Consumer Advocate was represented by Steve Alexander, Actuary, and Terry Butler, the Florida Insurance Consumer Advocate.
Ms. Watkins, who served as Fidelity’s spokesperson, indicated that the company’s primary need for the rate increase is driven by its adoption of the ASI preferred algorithm and the change of territorial definitions. She testified that the indications supported a rate increase of up to 27.8 percent.
Mr. Ritzenthaler specifically inquired into Fidelity’s relationship with its managing general agent (“MGA”), explaining that his concern revolved around Fidelity’s MGA being compensated in the amount of 25 percent of premium, instead of a flat fee.
Mr. Davey responded that Fidelity’s MGA takes on all underwriting and administrative expenses, which justifies its fee. However, Mr. Ritzenthaler equated the rate increase to a windfall for the MGA, since it will receive 25 percent of any increase, but will not perform any more service.
Speaking on behalf of the Office of the Consumer Advocate, Mr. Alexander stated that he had very few disagreements with Fidelity’s rate filing and went as far as saying Fidelity is the type of company that Florida wants. However, his concerns also focused on the MGA contract, which he said should be for a flat fee, not a percentage of premiums.
Mr. Alexander indicated that the MGA contract inflates Fidelity’s expenses to greater than is acceptable. His proposal was to allow a total per-policy increase of $224 and a loss adjustment expense per policy of $99. By limiting the increase to expenses in his calculations, the Consumer Advocate proposed a rate increase of 12 percent.
He also stated that the OIR should freeze MGA fees due to the large number of recent rate filings in which increases are being sought due to increased MGA expenses.
The Fidelity representatives opted not to respond to the Consumer Advocate’s statements.
Mr. Milnes indicated the record would not be kept open for further comment.
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