Florida CFO: Why Aren’t Insurance Rates Dropping?

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August 8  |  News  |   Danielle Szeliga

Posted: Aug 07, 2013 9:39 PM EDTUpdated: Aug 07, 2013 9:39 PM EDT


Florida Chief Financial Officer Jeff Atwater wants to know why homeowner insurance rates aren’t dropping.

Atwater sent a letter Wednesday to Florida’s insurance commissioner, Kevin McCarty, noting that one of the main costs for insurers has been going down this year. He asked McCarty why those savings weren’t being passed along to consumers.

Atwater is one of the state officials with the power to hire and fire the insurance commissioner.

In his letter, Atwater wrote that trade journals have reported recently that the cost of reinsurance has come down an average of 15 to 20 percent. Insurers purchase reinsurance from an out-of-state or foreign company to provide the insurer financial backing in case of major claims.

Atwater said Floridians need answers and they need to see their insurance bills coming down.

“If insurance companies can justifiably raise rates on Florida families because the reinsurance market drives their costs up, they can certainly lower the costs for Florida families when reinsurance prices fall,” Atwater wrote.

A spokeswoman for McCarty said his office was working on a response.

Annual reports prepared by Florida’s Office of Insurance Regulation show that the department has been approving more than 100 rate hike requests a year since 2009, including requests to raise rates by double-digits.

But McCarty in late May said he expected insurance rates to stabilize in the coming year.

The reasons for Florida’s steadily-increasing rates are varied and have triggered endless argument, especially among state lawmakers and others in the last two decades.

Industry officials argue that insurers in the past did not charge adequate rates to deal with the real risk of covering homes in hurricane-prone Florida. The fragile nature of the market has been exposed by storms such as Hurricane Andrew in 1992, a Category 5 storm that destroyed much of the South Florida city of Homestead, and the series of storms that battered the state in 2004 and 2005.

Model Predicts 2 Landfalling Hurricanes This Year!

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August 5  |  News  |   Danielle Szeliga

By August 2, 2013

Hurricane Irene's track in 2011Hurricane Irene’s track in 2011

A new hurricane model predicts that the U.S. will experience two hurricane landfalls—one on the East Coast and one along the Gulf Coast—in 2013. The model, Coastal Carolina University’s Hurricane Genesis and Outlook, or HUGO, will also provide specific storm-surge and inundation data as a hurricane approaches, CCU’s forecasting team says. The model interprets current atmospheric and oceanic conditions and compares

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them to past years with a similar mix of storm-influencing variables. It is the first forecast that narrows down how many hurricane formations in a season may actually hit land, CCU says, as opposed to how many may form. The forecasting team says that six to nine hurricanes of at least 74 mph wind speeds will form in 2013. So far this year, the Atlantic has spawned four tropical storms but no hurricanes. According to CCU atmospheric scientists, the East Coast averages about one hurricane biannually and the Gulf Coast typically sees one landfall per year. Colorado State University, meanwhile, has updated its predictions, calling for a total of 18 named storms in the Atlantic Basin between June 1 and November 30, including eight hurricanes, three of which may become major category 3 or above storms with wind speeds of at least 111 mph. “While the tropical Atlantic remains warmer than normal, it has cooled somewhat in the eastern portion of the basin,” said Phil Klotzbach, of the CSU Tropical Meteorology Project “However, it appears that the chances of an El Niño event this summer and fall are unlikely. Typically, El Niño is associated with stronger vertical shear across the tropical Atlantic, creating conditions less conducive for storm formation.” Earlier this summer, the team called for 18 named storms, nine hurricanes and four major hurricanes. This falls within the range provided by the National Oceanic and Atmospheric Association for 2013. NOAA’s Climate Prediction Center called for a 70 percent likelihood of 13 to 20 named storms in the Atlantic, or an above-average storm season. Seven to 11 may become hurricanes, with three to six may developing into Category 3, 4, or 5 hurricanes.

The Good Faith and Fair Dealing Debate Continues in Florida!

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August 5  |  News  |   Danielle Szeliga


For years a debate raged over whether Florida law recognized an action for breach of a common law obligation of good faith and fair dealing in a first party insurance claim. At the center were condominium associations that suffered damages from Hurricane Wilma and either had their claims underpaid or denied altogether. After years of waiting, the Florida Supreme Court issued its ruling inQBE Insurance Corporation v. Chalfonte Condominium Association, Inc.,1holding there can be no independent cause of action for breach of the common law obligation of good faith and fair dealing.

Many have argued this forecloses the possibility of having a jury consider whether an insurance company’s failure to act reasonably and in good faith can be considered a breach of the insurance contract. Relying on Chalfonte, carriers have argued, in essence, that they can act unreasonably without consequence in the breach of contract arena. Recently, a federal court in the Middle District of Florida ruled otherwise. InLumpuy v. Scottsdale Insurance Company,2 the court ruled that issues of a carrier’s reasonableness in exercising discretion under the contract should be considered in a breach of contract action.

Lumpuy involved a sinkhole claim where the policyholder and insurance company disagreed over the appropriate method of repair. When the carrier refused to approve the repair contract the policyholder obtained, Lumpuy alleged this refusal was a breach of the insurance contract.

The court found that the reasonableness of the insurance carrier’s refusal to approve the contract was an issue to be determined by the jury. According to the court, the jury could, and should, find a breach of contract if it determined that the carrier had acted unreasonably. The court considered the Florida Supreme Court’s decision in Chalfonte but ultimately found it distinguishable.

This order raises a major distinction not addressed in the Chalfonte briefing or opinion. The issue inChalfonte was whether “Florida law recognize[s] a claim for breach of the implied warranty of good faith and fair dealing by an insured against its insurer based on the insurer’s failure to investigate and assess the insured’s claim within a reasonable period of time.” There was no discussion of whether, like inLumpuy, an insurer breaches the insurance contract by failing to exercise reasonable discretion in the decisions it makes in response to a policyholder’s claim.

Rest assured that this trial court order will not be the end of the discussion. Aside from an appellate decision on this order, there will likely be a number of other courts considering similar issues. We will keep you posted as events unfold.

Storm Surge Losses Will Be Greater Than Wind Losses

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August 2  |  News  |   Danielle Szeliga

There is a 20% chance that storm surge losses will be greater than wind losses for any US hurricane that makes landfall, catastrophe modelling firm RMS has said.

The findings follow the update of RMS’ North Atlantic hurricane model suite, which the firm claims is the industry’s first model to simulate the interaction between wind and surge throughout the entire lifecycle of each hurricane using a state-of-the-art hydrodynamic model.

Dr. Claire Souch, vice president, model solutions at RMS said: “Hurricane Sandy revealed just how real storm surge risk is. This is a risk the market can no longer afford to ignore.

“Most insurance policies for commercial and industrial lines provide some level of coverage for flood loss, so having an accurate view of storm surge risk is critical to capital management and risk transfer decision-making, through to the structure and placement of cat bonds.”

According to RMS, the insured loss potential for homeowners and small business owners is lower than the larger commercial and industrial lines.

RMS has also issued a new medium-term rates forecast, which incorporates scientific findings into the impact that sea surface temperatures have on US landfall.

The research, conducted by RMS scientists, shows how increased hurricane activity in the Atlantic Basin is not always converting to a proportional increase in hurricanes making US landfall. These new findings are currently under peer review.

RMS’ Updated North Atlantic Hurricane Model Includes Storm Surge

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August 2  |  News  |   Danielle Szeliga

Kate Shepherd

July 31, 2013 – 2:24 pm ET

Risk Management Solutions Inc. has released the latest update of its North Atlantic hurricane model suite, which includes the ability to fully quantify risk from hurricane-driven storm surge, the catastrophe modeler said Wednesday.Version 13.0 also gives new insights into future hurricane activity levels, RMS said in a statement. The model can simulate the interaction between wind and surge using a state-of-the-art hydrodynamic model and can distinguish between the potential losses from residential and commercial lines of business, according to the statement.

“(Superstorm) Sandy revealed just how real storm surge risk is,” Claire Souch, vice president of model solutions at RMS, said in the statement.

“Our model shows there is a 20% chance that storm surge loss will be greater than wind loss for any U.S. hurricane that makes landfall, which rises to almost 40% along the Northeast coast of the United States; this is a risk the market can no longer afford to ignore,” Ms. Souch said.

Rates forecast

RMS also issued a new medium-term rates forecast that incorporates scientific findings into the impact that sea surface temperatures have on U.S. landfall.

The model includes the most up-to-date data from the Federal Emergency Management Agency’s 2012 flood insurance rating maps, RMS said in the statement.

“The most sophisticated catastrophe models combine high-resolution data, advanced scientific knowledge and a solid understanding of market practices. With version 13.0, RMS has once again taken the lead to give customers a stronger, sounder platform to assess their hurricane risk,” Ms. Souch said in the statement.

Property-Insurance Reform Needed!

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July 30  |  News  |   Danielle Szeliga


Published: Monday, July 29, 2013 at 4:01 a.m.
Last Modified: Monday, July 29, 2013 at 12:08 a.m.

Since 2008 when I was elected to my first term in the Florida House, I have advocated for reform to Florida’s property insurance market. During this period Florida has been lucky and blessed to have gone without a major storm or series of storms making landfall as we experienced in 2004 and 2005. Yet Florida is only one costly storm away from financial catastrophe caused by Florida’s state-run insurance market. Property-insurance reform is necessary because Florida relies on the trinity of insurance market “stabilizers” known as the Citizens Property Insurance Corp., Florida Hurricane Catastrophe Fund and Florida Guaranty Insurance Association. Each of these entities was created by the Florida Legislature. Together they focus an unacceptable financial risk on the citizens of Florida. This government solution must be reformed because, instead of spreading the catastrophe risk of hurricanes across the global capital markets, Floridians are basically self-insuring by allowing future hurricane catastrophe claims to be paid by assessments against Florida policyholders. Unfortunately, reforming the property-insurance market is extremely difficult because of the political resistance caused by the subsidized property-insurance rates created by the system of state government intervention. No politician wants to be accused of adopting policy that could increase property-insurance premiums. Logic and common sense are ignored because of the fear that reforming a government subsidy could result in higher insurance premiums. This political reality has a negative impact on the Florida property-insurance market. Florida has a regulatory history of not allowing the property-insurance industry to operate with actuarially sound rates. Although that reputation has changed since 2010, many large, well capitalized property insurance companies are hesitant to come back to Florida because of the combination of regulatory risk and the premium subsides created by the system of state government intervention. Without property-insurance reform, Florida will never be able to attract the private capital necessary to reduce reliance on the state-government system. With the leadership of Gov. Rick Scott, the Florida Legislature has made some incremental reforms. Yet much remains to be accomplished. Legislation is required to greatly reduce the size of Citizens and the Cat Fund. Reducing premium subsidies and improving the regulatory environment is the long-term solution that will attract private capital to the Florida property insurance market. Floridians need access to well capitalized private insurance companies that will not require their policyholder claims

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to be paid by the Florida Guaranty Insurance Association. With 1,100 miles of coastline, Florida has more coastal risk than all of the other states from Texas to the Carolinas combined. We can’t move Florida or control the weather. We can only properly plan for catastrophic storms. That is why property insurance reform is so important for the future of Florida. [ State Rep. John Wood, R-Winter Haven, represents District 41. He sponsored property-insurance-reform legislation that became law in both 2011 and 2013. Email: ]

Aspen Reports Sharp Profit Decline

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July 25  |  News  |   Danielle Szeliga

Bill Kenealy July 24, 2013 – 4:33 pm ET Stung by increased catastrophe-related losses, Aspen Insurance Holdings Ltd. said Wednesday that its second-quarter net income was $40.1 million, a 52.6% percent decline from the $82.6 million the insurer and reinsurer tallied in the same period last year.Hamilton, Bermuda-based Aspen saw underwriting results decline from the previous year, with the company’s combined ratio coming in at 97.1% for the second quarter of 2013, compared with 87.3% a year ago. However, net written premiums increased 5.3% to $612.7 million in the second quarter, mainly attributable to growth in marine, energy and construction liability as well as its global casualty lines of business, Aspen said. Results were similar for the first half of the year, with net income falling 19.2% to $131.9 million and the company’s combined ratio climbing to 93.7% compared with 90.4% for the first half of last year. In a release accompanying the earnings, Aspen CEO Chris O’Kane said the company is making progress on increasing profitability through initiatives such as share repurchases and new operations. “In the second quarter, Aspen delivered solid operating results in an above-average catastrophe quarter, with our

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combined ratio excluding catastrophes improving modestly from last year,” Mr. O’Kane said in a statement. “We have released $70 million of capital in our U.S. property insurance line and our U.S. operations overall continue to gain scale and momentum towards sustainable profitability. We executed over $240 million of share repurchases in the first six months of the year and continued to carefully reallocate a portion of our investment portfolio to achieve higher risk-adjusted returns.”

Market Hardening Moderates, Says CIAB

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July 25  |  News  |   Danielle Szeliga

Commercial insurance rate increases moderated a bit in the second quarter of this year slightly off the pace of the previous two quarters, according to the Council of Insurance Agents & Brokers.

The association’s quarterly survey of insurance rates shows while prices continue to climb, the rate of increase fell a little more than a full point on average from the first quarter to 4.3 percent. Small and medium size accounts had the sharpest increases in Q2 at 4.6 and 4.7 percent respectively, but even there the increases were off slightly by 0.6 points from the Q1 survey. Large accounts were not immune to increases, but the rate of increase fell 1.1 percentage points compared to Q1 to 3.8 percent.

Landrieu, Cassidy Compete on Flood Insurance

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July 23  |  News  |   Danielle Szeliga

By MELINDA DESLATTE — Associated Press

BATON ROUGE, La. – U.S. Sen. Mary Landrieu and her Senate race challenger, U.S. Rep. Bill Cassidy, are jockeying for credit and prominence on a high-profile problem for many Louisiana residents: the skyrocketing cost of flood insurance premiums.

Cassidy, R-Baton Rouge, worked with other lawmakers to get a temporary fix through the House that would delay the higher premiums for one year, while Landrieu, D-New Orleans, couldn’t get her long-term proposal for a three-year delay moving.

Under pressure from local Louisiana officials, Landrieu agreed to push Cassidy’s one-year reprieve idea in the Senate and was successful in advancing it through the Senate Appropriations Committee as part of a homeland security spending bill.

But Landrieu’s not acknowledging the idea started with her Senate race competitor.

“For a year now, I’ve been leading the effort in Congress to stop flood insurance from rising out of reach for the average homeowner and business owner,” Landrieu said in an e-mail to supporters describing the Senate committee approval of the one-year delay provision.

Cassidy’s office pointed out that the Landrieu proposal received backing from the House first — and with Cassidy’s name on it.

“This is a good first step but I encourage Senate leadership to move swiftly and pass these provisions before the full U.S. Senate. Louisianans need certainty, not partisanship,” the Republican congressman said in a statement.

The lawmaker who can successfully take credit for helping thousands of people across south Louisiana from seeing their insurance bills spike could parlay that into an important talking point on the campaign trail, in advance of the November 2014 election.

A victory on flood insurance could showcase an ability to get things done for voters back home even in the partisan gridlock that stalls most action in Congress.

At issue are homeowners whose flood insurance bills have historically been “grandfathered” at lower rates since they followed the rules in place at the time they bought or built their home.

Under a bipartisan overhaul of the flood insurance program last year, many of these homeowners face higher premiums when new flood maps are issued. Homeowners and local leaders say the increases could make the insurance too costly to maintain.

The change was designed to cut the federal government’s costs for a program that has required more than $24 billion in bailouts since its creation in 1968. But Louisiana officials say as the new flood maps are being drawn up, FEMA isn’t taking into account protection efforts like new and stronger levees and fortifications.

Both Landrieu and Cassidy are claiming they are the reason the head of the National Flood Insurance Program, David Miller, is heading to Louisiana in August to meet with local officials and hear more about the insurance premium hike concerns.

Landrieu’s office announced the visit of Miller, who is associate administrator of FEMA.

“Mr. Miller’s trip is critical for FEMA to understand how these rate increases could dramatically burden homeowners and small business owners in Louisiana and throughout the country. I appreciate that Mr. Miller accepted my invitation and look forward to the visit in August,” the Democratic senator said in a statement.

Within hours, Cassidy’s office released information saying the congressman and three of his Louisiana colleagues in the House “made the first request” for Miller to visit Louisiana, in a June letter.

“Dr. Cassidy has been a leader in the fight to protect Louisiana homeowners and businesses from unjustified NFIP rate hikes. Dr. Cassidy is glad that Associate Administrator Miller will honor this request and visit Louisiana soon,” Cassidy spokesman John Cummins said in the statement.

AIR: Industry Rapidly Adopting ‘Touchstone’

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July 19  |  News  |   Danielle Szeliga

AIR Worldwide is positioning its new catastrophe modeling platform, Touchstone, as a keystone tool for the insurance marketplace.

Aon Benfield, Guy Carpenter, Willis Re, Aspen Re, Montpelier Re, TransRe and FM Global are among the brokers, insurers and reinsurers using the program.

“Part of our risk management strategy is to evaluate and understand multiple views of risk. Our R&D department blends multiple external models such as AIR’s with our internal research. We appreciate the additional flexibility and depth of insight that Touchstone offers, as it gives us more control in terms of how we manage our overall catastrophe risk,” says Alan Calder, group head of catastrophe risk at Aspen, which has integrated Touchstone into its proprietary catastrophe management system, APEX.

Touchstone was launched in January 2013 with the promise of helping users harness a deep dive into their exposure and enterprise-wide loss potential. The program features modules for improving data quality, understanding hazards at specific locations, using mapping techniques to perform analytics for un-modeled geographical areas, and performing speedy loss analysis.

Clients have a choice to utilize Touchstone on their businesses’ operating system, in the cloud, or on-premises.

“The installation of Touchstone was effortless, and we were up and running in just a matter of days,” said Gero Michel, head of risk analytics at Montpelier Re. “Within the production environment, we’ve seen markedly reduced run times, and the platform helps us dramatically streamline our detailed modeling workflow. Our new ability to visualize and drill into exposure enhances our analytical capabilities and increases our underwriting skills for both our insurance and reinsurance business.”

AIR, a member of the Verisk Insurance Solutions group at Verisk Analytics, is in the process of updating the program to incorporate catastrophe and noncatastrophe risks on a single platform, and plans to debut this capacity in 2014.

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