The Florida Insurance Roundup from Lisa Miller & Associates The Florida Insurance Roundup from Lisa Miller & Associates

A new report claims that Florida's property insurance market is full of “low quality insurers,” especially those Florida-based companies that write the bulk of the 7.5 million homeowners and condo insurance policies.  It casts aspersions on Demotech, the rating agency that reviews their financial stability.Former Florida Deputy Insurance Commissioner Lisa Miller sat down with Demotech President Joe Petrelli to get the other side of the story that the report didn't.  She also learned that it wasn't low capital and surplus that led to seven company insolvencies, as the report claims, but instead targeted technology-enabled claim instigation.Show Notes  (For full Show Notes, visit https://lisamillerassociates.com/episode-49-when-insurers-exit/) The report, When Insurers Exit: Climate Losses, Fragile Insurers, and Mortgage Markets was written by researchers at Columbia University, Harvard University, and the Federal Reserve Board and published online prior to being peer reviewed.  The report’s abstract describes it as a study of how homeowners insurance markets respond to growing climate losses and how this impacts the home mortgage markets.  “Using Florida as a case study, we show that traditional insurers are exiting high risk areas, and new lower quality insurers are entering and filling the gap.  These new insurers service the riskiest areas, are less diversified, hold less capital, and 20 percent of them become insolvent.  We trace their growth to a lax insurance regulatory environment.  Yet, despite their low quality, these insurers secure high financial stability ratings, not from traditional rating agencies, but from emerging rating agencies.”  The report specifically targets rating agency Demotech, which provides Financial Stability Ratings (FSR) for most of the 50 or so Florida-based property insurance companies, including six of the recent eight carriers to enter the market.  The report claims Demotech’s ratings “are high enough to meet the minimum rating requirements” of Fannie Mae and Freddie Mac, which back many home mortgages, but that most of those insurance companies wouldn’t meet government requirements if rated by AM Best, suggesting the companies are financially weak.“I think the thing to keep in mind is the report is based on what are called counterfactual AM Best ratings of Demotech-rated companies,” said Joe Petrelli, President of Demotech, who described counterfactual methods as those based on “what-if” scenarios.  “So I think that, in and of itself, should have alerted people that this was not based on anything real or actual.  It was based on counterfactual information.  It's like rewinding the world, changing a few crucial details, and then hitting play to see what happens.  It's essentially a simulation,” said Petrelli.Petrelli is an actuary and a 55-year veteran of the insurance industry.  He and wife Sharon co-founded Demotech in 1985 and today the agency reviews and rates 460 insurance companies across America.  It is registered with the U.S. Securities and Exchange Commission as a nationally-recognized statistical rating organization for insurance companies.  Florida regulators approached Demotech in 1995 to become the very first ratings company to review and rate independent, regional and specialty companies that filled the gap left by....  (For full Show Notes, visit https://lisamillerassociates.com/episode-49-when-insurers-exit/)

How will the insurance bills that passed in the recently completed 2024 Florida legislative session compliment past marketplace reforms?   Is a property insurance market marred by carrier insolvencies in recent years and ongoing double-digit rate increases starting to stabilize? Former Florida Deputy Insurance Commissioner Lisa Miller talks with two legislators about the new laws expected to impact Florida’s property insurance and real estate markets, reinsurance prices, condominium affordability, and their joint belief in bipartisanship for finding workable policy solutions. Show Notes Florida State Representative Tom Fabricio (R-Miami Lakes) sits on the House Insurance & Banking Subcommittee and Chairs the House Ethics, Elections & Open Government Subcommittee.  He is a former insurance defense attorney whose practice now focuses on commercial and real estate litigation, including real estate transactions.  Florida State Senator Nick DiCeglie (R-St. Petersburg) is Vice Chair of the Senate Banking and Insurance Committee, Chair of the Senate Transportation Committee, and a former Chair of the House Insurance & Banking Subcommittee.  He is President and CEO of Hope Villages of America, a Tampa Bay area nonprofit organization addressing hunger, homelessness, and domestic violence.Both lawmakers discussed their motivation for entering the Florida Legislature and their vision for Florida’s homeowners insurance marketplace and by extension, the state economy.  Topics included the admitted insurance market (those companies whose rates and policy forms are approved by state regulators) and the surplus lines companies (those whose rates and forms are largely unregulated, and who often insure risks admitted companies don’t), along with reinsurance companies, who provide catastrophe insurance for insurance companies.  Among the bills and issues discussed on the podcast with host Lisa Miller: HB 1503 authorizes surplus lines insurance companies to take out policies (“takeouts”) from the legislatively-created and state-backed Citizens Property Insurance Corporation’s non-homesteaded residential properties, such as second homes, among other risks.  “I think surplus lines are important (for) it allows other free market competition,” said Rep. Fabricio.  “Because ultimately, with Citizens having a population of over 1.2 million to close to 1.3 million policies, we need to depopulate Citizens.  We need to bring Citizens down to a number under a million policies, where Citizens will be truly our carrier of last resort,” he said.HB 1029 applies the popular My Safe Florida Home homeowners program to condominium complexes and individual condo unit owners in an initial pilot program.  The program offers a $2 to $1 match to incentivize homeowners to harden their homes from future hurricanes.  “Anytime that we can mitigate losses in the state, it’s going to go a long way in contributing to that healthy insurance market,” said Sen. DiCeglie, who sponsored the Senate companion bill.  “In my district alone, we have thousands of condominium associations and those folks are looking for relief as well.  Recent condominium reforms requiring them to put more money in reserves, so that they're making the necessary repairs and upkeep of the condominiums (together with)....(For full Show Notes, visit https://lisamillerassociates.com/episode-48-2024-legislative-roundup/ ) 

Ray Shelton, Ph.D. is a nationally-known expert on stress and the impacts it has on frontline personnel in disasters and other crises.  He is a Fellow and the Director of Professional Development for The American Academy of Experts in Traumatic Stress, in Miller Place, New York.  He’s seen tragedy first-hand over 35 years serving with the Nassau County, New York Police department, including the Twin Towers Collapse during 9/11.  He’s also a former firefighter and paramedic.“The adjusters are no different than fire, police, and EMS, they're front line.  They're action-oriented.  They take risks.  They have tremendous attention to detail.  They have a powerful need for control, to help people get their lives back in order,” said Shelton.  “But the price that is paid for that, is all of the memories, all of the conversations, all of the sites that they see stays with them.  There's absolutely no delete button in the human brain.”Shelton worked with the Liberty Mutual Insurance Catastrophe Response Team during the California Wildfires in 2008 and subsequent tornado outbreaks across the country.  That’s where he met Jenny Pye, M.S., whose 35 years with Liberty Mutual included serving as a Property Claims Manager and Director of Quality Improvement for Auto Physical Damage (APD), Property, and Shared Services.“Every time I hear Ray talk, it takes me back to early in my career when I was an adjuster in the field and would go out and have multiple fatality 18-Wheeler accidents, and just the emotions of being on scene and investigating a claim,” said Pye.  “Sometimes the bodies were still there and then talking to their families, just all those emotions.”Today, Pye is the Director of Commercial Claims at Pilot Catastrophe Services, based in Mobile, Alabama.   She helps adjusters and the firms they serve to not only proficiently manage the technical part of the job, but manage the emotional toll that claims can have.  She said adjusters who strive for great customer experience, often ignore or cover-up signs of traumatic stress.  “But sometimes you get feedback as a manager and hopefully before you get that feedback from your customer, you're recognizing these issues,” said Pye.  “Maybe the adjuster is not as responsive as they normally are.  It's not just answering a text or phone call, if you're calling about a claim, it can be on a Zoom call and you will see where these folks that are normally engaged are not engaged.”  That, she adds, requires claim managers to “finely tune your senses to be aware of what’s going on.”Shelton, who presents “Fine Tuned Adjuster” webinars for the Property Loss & Research Bureau said there are consequences of not recognizing the signs in adjusters or of claims management not responding to the signs.“If you do nothing, it stops productivity and the bigger danger (is) maybe that you lose that person who has bottled this all up from multiple times that this has occurred and finally says, ‘You know, I've had enough’ and they leave the industry,” Shelton said, noting the current market challenge of recruiting adjusters to replace those that leave the profession.(For full Show Notes, visit https://lisamillerassociates.com/episode-47-stress-strain-of-adjusting/) 

Advances in artificial intelligence (AI) and machine learning are getting closer to providing insurance companies with a new underwriting tool to combat fraud: the ability to review meeting minutes and other public documents from homeowners and condominium associations, whose communities are home to nearly half of Florida’s 22.3 million residents.Several Florida associations have been accused of recent wrongdoing, including one where four former board members were arrested, accused of engaging in a multi-million dollar embezzlement of monthly dues from residents.  Former Florida Deputy Insurance Commissioner Lisa Miller sat down with an insurance lawyer and an insurance services company executive who uses AI, to find out how often this fraud happens, how it increases property insurance rates, and exactly how the new technology to fight it will work.Show Notes The South Florida Sun Sentinel did a recent exposé of a West Miami development called The Hammocks, a 6,500-unit community of houses, townhouses, and condominiums.  Four former association board members were arrested for allegedly engaging in an intricate scheme to embezzle millions of dollars in monthly dues from residents.  Authorities say $2.4 million in checks were written to five companies that did little or no work for the homeowners association (HOA) – two of them owned by the husband of the former board president.  Andy McGuire, Chief Strategy Officer and Co-Founder of PEAK6 InsurTech, said such fraudulent practices contribute to inflationary pricing and higher insurance rates.   He said advances in technology, especially artificial intelligence (AI) and the machine learning process, are providing better insights into risk.  His company’s subsidiary, Focus Technologies, is doing this today to serve its customers better. “With enough observations, you can run a model, for example, on the language used in the meeting minutes to potentially pick up on schemes,” said McGuire.  “Now that we have this example, for this particular issue, we can build an AI and teach it with these talk paths or words and knowing that it resulted in fraud, you have your first learning.  You can get enough positive observations that you now have a model that an underwriter can load the minutes into and get a prediction.  Combine that with financial data and a propensity to commit fraud of each individual member of the board, and you have a fully automated decision tree.  I don't think we're totally there yet, but we're really close.  This is the future,” said McGuire, whose 25 years in the industry include risk management and reinsurance.Tiffany Rothenberg is a Partner at the Kelley Kronenberg law firm’s West Palm Beach office in the heart of Florida’s condominium country.  She represents commercial property insurance companies in complex coverage disputes and is an expert in the HOA and condominium association insurance claims arena.  “I can't tell you how frequently we end up seeing this kind of a scenario,” Rothenberg told host Lisa Miller.  “I just had a case here in Palm Beach County, where the association submitted a $4.5 million dollar Hurricane Irma claim for roof damage.  When we started to review their condo records, we discovered that the association actually had five roof replacement proposals that were all under $1 million.  And then during depositions, it came out they actually signed a contract with one of those roofing contractors for around... (For full Show Notes, visit https://lisamillerassociates.com/episode-46-insurers-know-the-building-and-the-board/)  

Media coverage has intensified over an allegation by three independent insurance adjusters that Florida property insurance companies are cheating their policyholders out of rightful claim payouts.  The three accuse the industry of altering their field adjuster reports and reducing claim payouts – all without their knowledge or approval. Former Florida Deputy Insurance Commissioner Lisa Miller sat down with two independent field adjusters and an attorney who represents insurance companies to learn their perspective and just how damage claims – and their payouts – are ultimately decided and by whom.    Show Notes The three adjusters and their allegations first appeared in public last December to testify during the Florida Legislature’s special session which resulted in a series of new consumer insurance reforms.  The reforms included the end of one-way attorney fees for property insurance lawsuits, the end of Assignment of Benefit contracts, and a further tightening of claim practices, among other things.  These were all abusive practices by bad actors against insurance companies and policyholders that were blamed for driving up the cost of insurance and creating market turmoil. (For full Show Notes, visit https://lisamillerassociates.com/13875-2/)   Shawn Kelliher of Cape Coral is a 16-year veteran in the insurance adjusting business.  His first 13 years were working for Farmers Insurance Company as a desk adjuster and then as a catastrophe field adjuster, including large loss and complex claims across the country.  He said “it’s absolutely not the case” that insurance companies are out to get everybody and explained that there are many legitimate reasons why field damage estimate reports change.   Field adjusters often don’t know what damage is covered by the insurance policy.  “Some policies have actual cash value only coverage, some policies have specific exclusions for certain items and a lot of times we don't know that,” Kelliher said.  “So we see and document the damage and that goes in our report and that’s sent up (to the independent adjusting firm or insurance company), only to be later found out that, unfortunately, in those circumstances where they (the policyholders) don't have coverage, those items have to be removed or taken out of the estimate.  And it's not a malicious situation,” the Naples, Florida native said.  Kelliher said he’s seen it many times over the past three years that he’s been an independent adjuster in Florida.  He said he works for a variety of adjusting firms and across a vast array of insurance carriers, doing both residential and commercial work.  Vanessa McGonigal, an independent field adjuster from Cooper City agrees.  Often times, she said she is not aware of any changes that may take place in the final adjusting report on a claim.  “If we're preparing an estimate for all of the damages we see and we submit that and coverage is not afforded for something written on our estimate, where is it that we should give permission to have that removed?  If it's not covered, it's not covered,” McGonigal said.  She began her career in 2009 as an estimator for a general contractor and then five years ago, became an independent field adjuster.  She said she has worked for a couple of independent insurance adjusting firms, doing both residential and commercial claims, including from Hurricane Ian.Both McGonigal and Kelliher said that if there is a change to the estimate, sometimes they make it, sometimes their adjustment firm does it, or the desk adjuster at the insurance company, depending on the change and the situation. “They'll call me and say, ‘Hey, you know, I read your report, I saw your photos, this is what I was thinking.  Can you kind of explain your thought process here or justify what it is that you put in your estimate?’ and we’ll have a conversation ab(continued)

An interim report submitted to the Florida Building Commission says that Southwest Florida coastal communities impacted by last September’s Hurricane Ian were “ill-prepared” for the storm surge and flooding, despite lessons on wind mitigation learned from Hurricane Charley 18 years earlier.  Ian was the costliest storm in Florida history, killing 156 people and causing an estimated $109.5 billion in damage in Florida.  Only an estimated half of that will be covered by insurance.Former Florida Deputy Insurance Commissioner Lisa Miller sat down with the report’s co-author and another extreme events scientist who produced early catastrophic models on Ian for insurance companies.  They discussed how this new research shows some of the same patterns of destruction seen in prior storms, that Florida hurricanes are not getting stronger or more frequent, how elderly and poor residents are disproportionately hurt, potential changes to the state building code, and why a new approach to mitigation is needed.    Show Notes New lessons are emerging from Hurricane Ian, the high-end Category 4 hurricane that made landfall near Fort Myers Beach on September 28, 2022.  An interim report by a team of scientists supported by the Florida Building Commission showed Ian’s tropical storm-force wind field was 2.3 times the diameter of 2004’s Hurricane Charley.  The greater resulting storm surge of 13 feet impacted high population areas living in both elevated and on-grade homes along hundreds of miles of canals and coastal frontage.  (For full Show Notes, visit https://lisamillerassociates.com/episode-44-dynamic-duo-ian-hit-hard/) Findings: The report evaluates specific building code-related impacts to structural performance, including breakaway walls relative to code provisions, placement of the coastal construction control line, evidence for surge-induced floor slab uplift forces, and performance of common roof cover and wall cladding elements. Dr. David O. Prevatt, one of the report’s co-authors, is a Professor of Civil & Coastal Engineering at the University of Florida’s Herbert Wertheim College of Engineering.  He is part of the Structural Extreme Events Reconnaissance (StEER) Network of researchers and product engineers that conducts surveys to assess building performance after each hurricane.  Its evaluation was used in the interim report and captured Hurricane Ian’s damage patterns and storm surge.  Dr. Prevatt said Ian was not a design level wind-event, meaning its wind speed on land of about 120 mph was below the building code standards of 154-160 mph for Lee County, where it made landfall on September 28, 2022.“The severe damage we saw was really the flooding, in particular the manufactured homes on Fort Myers Beach and mostly older slab-on-grade homes,” said Dr. Prevatt.  “The good news, if there is any that we can draw from this, is that recent construction built to the recent Florida Building Code standards performed well, even in areas where they were impacted by the 13-foot high storm surge.”Yet, Ian destroyed or severely damaged about 20,000 homes in a wide path from Lee County on the Gulf Coast and inland across central Florida to Daytona Beach on Florida’s Atlantic Coast.    Dr. Prevatt said he saw the same patterns of damage in Ian that he saw in the previous six years from Hurricanes Matthew, Irma, and Michael.  “It’s one of the saddest parts for me.  If we don't harden our communities or retreat and move them away from these intense events, we will repeat what we've seen here five, 10, 20 years down the road,” said Dr. Prevatt.    Dr. Karthik Ramanathan is Vice President of Research at Verisk, the worldwide data analytics and risk assessment firm.  He led the catastrophe modeling team that estimated Hurricane Ian’s initial insurance and reinsurance losses at between $42 billion to $57 billion, no(continued)