Florida Hurricane Catastrophe Fund 2010 Participating Insurers Workshop Report
Jun 5, 2010
The 10th Annual Florida Hurricane Catastrophe Fund (“FHCF”) Participating Insurers Workshop began its two-day agenda on June 3, 2010 in Orlando.
Former State of Florida Chief Financial Officer and Treasurer/Insurance Commissioner Tom Gallagher, now Chairman of the Tom Gallagher Insurance Agency, served as the keynote speaker. In his address to Workshop attendees, Mr. Gallagher recounted the formation of the FHCF after Hurricane Andrew, the establishment of the Florida Residential Property and Casualty Joint Underwriting Association and, subsequently, Citizens Property Insurance Corporation (“Citizens”). He reviewed the respective roles of these organizations in the Florida insurance market and political environment and also related some of his personal experiences as Florida’s top insurance regulator during Hurricane Andrew.
FHCF Chief Operating Officer Jack Nicholson was joined by John Forney, Raymond James & Associates Director and Manager of Florida Public Finance, to provide Workshop attendees with an FHCF-specific update.
Dr. Nicholson reviewed the FHCF’s potential obligations, noting that it has liquidity of approximately $9.5 billion and an estimated bonding capacity of $16 billion, which equates to over $25 billion available for claims payment. He also commented on Senate Bill 1460, the passage of which has amended the FHCF Contract Year and retention dates. These changes also allow additional time for insurers to negotiate for private reinsurance.
Mr. Forney provided additional FHCF financial information, explaining that the FHCF is in much better financial condition than it was a year ago, and that there is only a five percent chance that assessments will need to be levied in 2010. Partially based on its recent ability to issue bonds for $675 million at a 3.81 percent interest rate, the FHCF’s rating has been upgraded from AA- to AA. He added that a federal backstop was needed to guarantee FHCF bonds.
Insurance Environment in Florida
As part of the program, Florida Senate Committee on Banking and Insurance Legislative Staff Director Steve Burgess moderated a discussion on Florida’s insurance environment that included a history of the Florida insurance marketplace.
Along with Florida Deputy Insurance Commissioner Belinda Miller, the Panel comprised individuals who previously or currently serve in the Florida Office of Insurance Regulation (“OIR”).
The National Association of Insurance Commissioners’ accreditation process in relation to Hurricane Andrew was discussed. Florida was the first state to receive NAIC accreditation, since radical changes had been necessary, as was the need for local flexibility to respond to the crisis.
The need to augment the OIR’s staff expertise on technical insurance issues and the implementation of technological changes to systems such as I-file also was discussed. A “rating crisis” had begun in 2005 that stemmed from troubles created as a result of the insurance market struggling to recover from the 2004 Hurricane Season.
Ms. Miller discussed her experience with the OIR’s solvency and regulatory efforts, noting that, although the 2004 and 2005 storms were very challenging, the industry performed well. She also touched on the OIR’s implementation of new technologies, which has advanced despite the current state budget crisis.
Current Florida Insurance Issues: Hurricane Claims Inflation and Public Adjuster Involvement
Florida Insurance Consumer Advocate Sean Shaw joined the Workshop panel on public adjuster involvement in the Florida insurance marketplace.
Mr. Shaw discussed the significance of having brought all the interested parties together to formulate a legislative proposal in regard to public adjuster regulation. This was accomplished primarily through roundtable-style discussions. He also expressed his support of Senate Bill 2044, noting that certain provisions in it were good for consumers.
It was agreed among the panelists that claim exaggeration by public adjusters is especially problematic. This issue has brought unfavorable litigation policies in the insurance marketplace to light, along with negative aspects of the “cottage industry” created by public adjusters in regard to claims handling.
A representative from the Florida Association of Public Insurance Adjusters provided a review of that organization and a history of the public adjuster industry in Florida.
Florida Catastrophic Storm Risk Management Center (“Center”): Current Research Effort-Florida Mitigation Discounts
Center Director Patrick Maroney reviewed the Center’s recent activities, such as research projects on mitigation credits, for which results are available at www.Stormrisk.org.
In regard to the problems with Florida’s mitigation credit system, Mr. Maroney added that issues have arisen because the focus has been on premium reductions rather than hardening homes. Referencing a 2009 Risk Management Solutions study that demonstrated hardened homes reduce windstorm losses, he also suggested that the insurance market should return to an indemnity market rather than a replacement market.
Current Insurance Issues in Florida: Windstorm Loss Mitigation Inspections/Re-inspections
A panel discussion regarding wind mitigation inspections and re-inspections served to outline some of the “bad actor” practices that have caused many problems relating to loss mitigation.
Citizens Director of Agent Services Joe Bouthillier reviewed Citizens’ in-progress wind mitigation credit re-inspection program, which has yielded a 90 percent variation among 700 homes initially inspected through the pilot phase of the project. He also discussed specifics in regard to deficiencies in the original OIR-B1-1802 uniform mitigation inspection verification form. Citizens’ three-phase approach for its re-inspection program will hopefully result in a uniform re-inspection program for all of its inspection needs by 2011.
2010 FHCF Premium Formula: Rates, Retention Multiples and Payout Multiples
Paragon Strategic Solutions Managing Director and Actuary Andy Rapoport discussed the FHCF Premium Formula. The following policies are new for 2010:
- Wind mitigation factor relativities are capped at 20 percent;
- The cash build-up factor is now at 10 percent–up from the former five percent;
- There is a three times Temporary Increase In Coverage Limits (“TICL”) premium-up from two times;
- The TICL layer has been reduced to $8 billion from $10 billion; and
- The overall rate increase from 2009 to 2010 is 4.3 percent for the mandatory layer and 15 percent for the TICL layer.
The second day of the Workshop included presentations on exposure and loss examination programs and commutation of the 2004 and 2005 FHCF losses.
The program also included several breakout sessions led by various FHCF staff members on topics such as loss reporting and examinations, exposure examinations, the FHCF data call, the FHCF Reimbursement Contract, rating, FHCF modeling and general FHCF-related questions and answers.
The final agenda item was a roundtable discussion on assumption companies. Dr. Nicholson concluded the meeting following this discussion.
Copies of the presentations provided throughout the conference will be available on the FHCF Web site at www.sbafla/fhcf in the coming days and will be forwarded as they become available.
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