Paige St. John: Regulators take a gamble on discount insurance
Apr 21, 2010
The following article appeared in the Sarasota Herald-Tribune on April 19, 2010:
Mike Gold’s idea to transform Florida property insurance arrived at the right moment.
With insurance premiums hitting record highs and national carriers dropping millions of homeowners, Gold told regulators in late 2007 he could cover tens of thousands of families for bargain basement prices.
Sell policies over the phone instead of through agents, and stop handing out checks when homeowners filed claims, sending repairmen to fix the problems instead.
The approach was unorthodox, so much so that even the man Gold hired to run his company thought it was headed for disaster.
“I just knew it wouldn’t work,” Richard Widdicombe told state investigators after leaving the company in early 2009. “There’s no way you can replace a thousand people’s roofs with your own people.”
But the Office of Insurance Regulation was willing to let Gold try, and in 2008 granted People’s Trust permission to sell insurance, putting thousands of homeowners into the hands of a company run by a man who had no insurance experience.
Then, when insurance agents around Florida began to allege in September 2008 that People’s was endangering customers by using unlicensed workers to sell policies, state regulators held off action. They waited until early 2009 to begin their own inquiry.
What the Office of Insurance Regulation would eventually discover is that behind Gold’s ideas to rewrite the rules of Florida home insurance was a large call center operation, pumping out thousands of policies containing legal violations that could have left unwitting homeowners uninsured for major risks.
Ultimately cited for hundreds of violations, People’s Trust was ordered to reorganize in April 2009. It was allowed to keep its 30,000 policies. By July, with a newly trained staff but the same business model, regulators put Gold back into business for a second try at the Florida market.
Gold blames early problems on his inexperience and said he never intended to do anything more than give Floridians an affordable option to insure their homes.
He is ready to move on.
“Is there truly a value in two-year-old allegations?” he asked during interviews, offering to focus instead on testimonials from satisfied customers.
AN UNORTHODOX COMPANY
Gold, a former New Jersey office equipment distributor, got into property insurance by happenstance.
He had retired to Florida, built a house, and was outraged at what companies charged to insure it. Unable to find a bargain, Gold launched his own insurer, and hired his home contractor as his claims manager.
Ever the salesman, Gold courted the media and politicians. He paid $25,000 to the Republican Party of Florida for a ticket to Gov. Charlie Crist’s 52nd birthday bash in July 2008. Thanks to what Gold claims was the handiwork of Senate President Jeff Atwater, he was seated at the head table next to the governor and his future wife.
As Gold tells it, People’s Trust was licensed by Florida’s Office of Insurance Regulation with full knowledge that its plans were unorthodox.
Florida Insurance Commissioner Kevin McCarty “personally told me we were a breath of fresh air, that he approved of our approach to the marketplace,” Gold said.
The selling point was cheap insurance.
People’s Trust cuts costs by relying on telephone sales by marketers following scripts, skipping the 10 percent commission usually pocketed by outside agents.
Instead of writing claims checks, the company sends out repairmen whose costs it controls. Gold also plans to stock a warehouse with hurricane repair supplies to avoid the supply shortages and inflated prices that usually follow a major disaster.
Within a year, People’s Trust had more than 30,000 customers. But Gold quickly ran into problems.
In September 2008, the Florida Association of Insurance Agents began to document scores of violations, and by November 2008, turned over large boxes of evidence to state regulators.
Among the alleged violations: People’s was illegally allowing unlicensed employees to sell insurance. And in pursuit of low premiums, it often was writing policies that did not fully cover homeowners for such hazards as sinkholes.
The agents also warned the two Florida agencies that oversee insurance companies that People’s Trust was offering homeowners unjustifiable discounts in an attempt to undercut competitors. By charging too little, the association warned, People’s Trust was endangering its ability to pay future claims.
The rest of that year, nothing happened.
“We were at a loss of what to do,” said insurance agents association president Jeff Grady, who at the time believed the case would go ignored.
By late 2008, Chief Financial Officer Alex Sink’s Department of Financial Services had started a slow but methodical investigation into Gold’s use of unlicensed agents, a line of inquiry that would take a year to unfold without ever closing down the operation.
The Office of Insurance Regulation did not send its own examiners to check on People’s until February 2009. Deputy Commissioner Belinda Miller said the delay was reasonable, considering the time needed to line up an investigation and the intervening holidays.
“We should have shut them down over the Christmas holidays?” she asked.
OIR reports on the investigation were never finished, but early drafts show examiners randomly inspected policies. Every one contained at least one violation of state law. Most had several. In all, the 109 policies contained 795 violations of 22 state statutes.
The policies lacked documentation of the property insured. They lacked required documentation that policyholders knew they had foregone coverage for things like sinkholes and floods.
Half the policies contained premium discounts for which the homeowners were ineligible. Old homes were written as “new.” Block homes were insured as “superior.”
Gold says most of the violations were unintentional. In a 10-minute YouTube video posted in March 2009, Gold argued he had permission from state officials to sell insurance without licensed agents. In the video, he berates CFO Alex Sink for not being “informed of these things although a number of leading Democrats in the state tried to make her aware of it.”
The findings by state regulators did not surprise Widdicombe, at the time the company’s only executive with insurance experience.
Widdicombe left the company during the OIR investigation, and later told investigators for Sink’s office that what Gold created at People’s was deliberately misleading.
In statements made under oath, Widdicombe alleged Gold set out to win policies from other insurance companies by giving homeowners huge discounts for which they did not qualify.
“He wanted to win the sale,” said Widdicombe, who characterized Gold’s philosophy as, “If you can sell a washing machine, you can sell an insurance policy.”
The belief was reflected in those hired to staff People’s sales phones. Former employees interviewed by the Herald-Tribune included an office supply salesman and a mortgage salesmen. Both said they knew nothing about insurance when they were selling it for People’s.
In April 2009, insurance regulators suspended People’s and fined it $150,000. The Department of Financial Services would follow eight months later with a $100,000 settlement with the managing agency Gold used to operate People’s.
Gold’s insurance suspension did not last long.
Under the supervision of state insurance regulators, he invested more money in his company and hired experienced executives to run the operation.
He also put his sales staff through enough training to clear them to sell property insurance policies.
In July, insurance regulators gave People’s Trust permission to sell insurance for a second time.
“They recovered. I was not sure they could,” said Deputy Commissioner Miller. “They came back and hired some experienced managers and they have put a lot of effort. I am hopeful that company will be fine.
“They have some good, innovative business ideas. They will always be under attack because they don’t use agents.”
Gold’s own enthusiasm for his business model remains unbridled. In a recent interview, Gold said he still plans to stockpile warehouses with drywall for the next hurricane.
“We have built a real company,” he said. “We have a business model to change things in this state.”
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