Donelon Asks President to Hold Off on Raising Flood Rates

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November 22  |  Flood, Louisiana, News  |   Danielle Szeliga

Lousiana Insurance Commissioner Jim Donelon used an opportunity to meet with President Obama to present him with a letter asking him to refrain from raising flood insurance rates for residents of his state.

The contents of the letter were not available, but it was written by Michael Hecht, president and CEO of Greater New Orleans, Inc. (GNO). Also signing on were the National Association of Homebuilders and the National Association of Realtors.

Donelon, president of the National Association of Insurance Commissioners, met with Obama Nov. 20 along with NAIC CEO Ben Nelson, Connecticut Insurance Commissioner Thomas B. Leonardi and Noarth Carolina Insurance Commissioner Wayne Goodwin to primarily address issues with the Affordable Care Act.

Donelon says he presented three to four-pages of documentation prepared by the three groups about the “unintended consequences the rate increases will have on our economy,” and asking the president for “forbearance.” The documents were delivered “on behalf of Louisiana first, and two dozen other states to a lesser degree,” the commissioner said during a conference call with reporters after the meeting.

“We have a working coast, not second or vacation homes,” Donelon said. “This is important for Louisiana as well as the rest of the country. We need forbearance from the rate increases mandated by the 2012 law,” he said.

The president agreed to read the letter, but did not make a commitment to act on it, Donelon added.

Asked why Louisiana, where 49 percent of flood insurance policies are subsidized, wanted special treatment while it has declined to open its own insurance exchange and will not accept the additional Medicaid funds states can access through a provision of the Patient Protection and Affordable Care Act, Donelon acknowledged that Louisiana is the state that “most benefits” from subsidized flood insurance rates.

GNO and the associations of homebuilders and real estate agents previously outlined their problems with the 2012 Biggert-Waters Act at a Nov. 19 hearing held by a House Financial Services Committee subcommittee. Hecht testified that imposing the rate hikes would be “economically unwise and morally unjust.”

Meanwhile, 15 members of the Senate led by Mary Landrieu, D-La., introduced a bill as an amendment to the defense reauthorization act now on the Senate floor. The bill would delay the rate increases mandated by the 2012 Biggert-Waters Act for as long as four years in some cases, its supporters estimate.

Federated National Holding Company Announces Pricing of $26 Million Offering of Common Stock

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November 21  |  Federated National Holding Company, News  |   Danielle Szeliga

Federated National Holding Company (Nasdaq:FNHC) (the “Company”), a Florida-based provider of insurance, announced that it has priced an underwritten public offering of 2,418,605 shares of its common stock at a price to the public of $10.75 per share for gross proceeds of $26.0 million. The net proceeds from the sale of the shares, after deducting the underwriters’ discounts and other estimated offering expenses payable by the Company, will be approximately $24.2 million. The Company has also granted the underwriters a 30-day option to purchase up to an additional 362,790 shares of common stock offered in the public offering to cover overallotments, if any. The Company will use the net proceeds from the sale of the common stock for general working capital purposes, including as statutory capital in support of the Company’s growth. The closing of the offering is subject to market and other conditions. The offering is expected to close on November 25, 2013. Raymond James & Associates, Inc. is

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What You Need to Know About Earthquake Coverage

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November 21  |  Earthquakes, News  |   Danielle Szeliga

AUSTIN, Texas,Nov. 20 — TheProperty Casualty Insurers Association of America issued the following news release:

Recently there’s been in an increase in the number of tremors and earthquakes recorded acrossNorth Texas. While the magnitude of the earthquakes hasn’t caused much damage, it’s still not something that should be ignored. TheProperty Casualty Insurers Association of America wants to urge homeowners, renters, and businesses to think about possibly purchasing earthquake coverage before it’s too late.

The standard homeowners policy does not cover losses that result from earthquakes, due to the unpredictability and widespread catastrophic nature of these events.

“It’s important to note that earthquakes can happen almost anywhere, while the damage from these smaller earthquake might not be noticeable this time, it should get residents thinking about the future,” saidJoe Woods, PCI’s vice president of state government relations.

“While there’s no doubt it’s important to physically prepare for earthquakes, it’s also a good idea to have a simple conversation with your agent or insurance company and assess your need for earthquake insurance.”

Earthquake insurance is designed to provide coverage for catastrophe losses. Consumers are protected from the damage caused by the shaking that results from the movement of the earth. The deductible for earthquake insurance varies based on the policy and the insurer. These deductibles are generally based on a percentage of the replacement value of the home. The deductible can range from two to 25 percent of the home’s replacement value.

FEMA offers some tips on how to prepare for an Earthquake:

* To begin preparing, you should build an emergency kit and make a family communications plan.

* Fasten sAriales securely to walls.

* Place large or heavy objects on lower sAriales.

* Store breakable items such as bottled foods, glass, and china in low, closed cabinets with latches.

* Fasten heavy items such as pictures and mirrors securely to walls and away from beds, couches and anywhere people sit.

* Brace overhead light fixtures and top heavy objects.

* Repair defective electrical wiring and leaky gas connections. These are potential fire risks. Get appropriate professional help. Do not work with gas or electrical lines yourself.

* Install flexible pipe fittings to avoid gas or water leaks. Flexible fittings are more resistant to breakage.

* Secure your water heater, refrigerator, furnace and gas appliances by strapping them to the wall studs and bolting to the floor. If recommended by your gas company, have an automatic gas shut-off valve installed that is triggered by strong vibrations.

* Repair any deep cracks in ceilings or foundations. Get expert advice if there are signs of structural defects.

* Be sure the residence is firmly anchored to its foundation.

* Store weed killers, pesticides, and flammable products securely in closed cabinets with latches and on bottom sAriales.

* Locate safe spots in each room under a sturdy table or against an inside wall. Reinforce this information by moving to these places during each drill.

* Hold earthquake drills with your family members: Drop, cover and hold on.

Court says CGL policy doesn’t cover poor workmanship

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November 21  |  Liberty, News  |   Danielle Szeliga

A subcontractor’s allegedly faulty preparation of a building pad that resulted in subsequent settling and structural damage to the building constructed on top of it is not an “occurrence” within the standard coverage language of a commercial general liability insurance policy, says an appellate court, ruling in favor of Liberty Mutual Fire Insurance Co.

Bentonville, Ark.-based Wal-Mart Stores Inc. had contracted with Temple, Texas-based MW Builders Inc. as a general contractor to build a new Wal-Mart in Morehead, Ky., and MW in turn subcontracted with London, Ky.-based Kay & Kay Contracting L.L.C. to perform site preparation work and construct the building pad for the new store, according to Tuesday’s ruling in Liberty Mutual Fire Insurance Co. v. Kay & Kay Contracting L.L.C. and MW Builders Inc. by the 6th U.S. Circuit Court of Appeals in Cincinnati.Kay & Kay had insurance coverage with Liberty Mutual Fire, a unit of the Boston-based Liberty Mutual Group.After Kay & Kay had completed the building pad and the building was erected, Wal-Mart notified MW Builders there were cracks in the building’s walls. Wal-Mart alleged that the fill area underneath the front left corner of the building had experienced settling, and this had caused structural problems and resultant damage to the building, according to the ruling.MW Builders demanded that Kay & Kay remedy these issues and indemnify it. Kay & Kay denied liability and demanded coverage from Liberty Mutual under its commercial general liability policy.


MW Builders and Kay & Kay eventually reached an agreement and executed a new and separate contract under which Kay & Kay agreed to perform the remedial work demanded by Wal-Mart in exchange for additional consideration.Meanwhile, Liberty Mutual filed a complaint seeking a judgment that it was not obligated to provide coverage under its policy. The standard coverage language in the standard Insurance Services Office Inc. policy form said coverage applies only to property damage caused by an “occurrence,” which is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The term accident is not defined in the policy.A three-judge appellate panel held that preparation of the allegedly faulty building pad was not an occurrence under the policy.“It is certainly plausible to hold that when a repair service comes to existing property to work on only a certain aspect of that property, unintentional damage to other aspects of the property caused by the repair service’s defective workmanship qualifies as ‘fortuitous’ and therefore an ‘accident,’” said a three-judge panel.“However, this is distinctly different from holding that when a subcontractor is hired to prepare a property building pad for a new building, any settling and resulting structural damages to the building allegedly caused by the subcontractor’s defective workmanship also qualify as somehow ‘fortuitous’ or an ‘accident,’” said the appellate court, in overturning a ruling by the U.S. District Court in Lexington, Ky.The case was remanded with instructions to grant judgment to Liberty Mutual.

Florida Property Insurance Updates

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November 20  |  Florida, News  |   Danielle Szeliga
State Capital Bulletin
November   19, 2013
State: Florida
Topic: Florida   Property Insurance Updates
Lines Affected: Property
PCI Contact: Donovan   Brown, Counsel, State Government Relations



This State Capital Bulletin contains updates on Florida property insurance issues, including updates regarding: Citizens; the Insurance Consumer Advocate Homeowners’ Claims Bill; the Florida lawsuit against the NFIP; and reviews of other potential legislative issues for 2014.

 Citizens Clearinghouse Set to Go   Live in 2014

As many as 18 private property insurance companies have signed up to participate in state-run Citizens Property Insurance Corporation’s clearinghouse to shop policies scheduled to come online January 2, 2014. Registered companies include: American Integrity; Ark Royal; Avatar; Bankers Insurance Group; Capitol Preferred; Federated National; Florida Peninsula; Heritage; Modern USA/American Traditions; Olympus Insurance; People’s Trust; Safe Harbor; Security First; Southern Fidelity/Southern Fidelity Property & Casualty; Southern Oak; Tower Hill Signature; and United Property & Casualty.

The clearinghouse is designed to shop prospective and renewal Citizens customers in the private market, part of the company’s plan to reduce its overall risk. Homeowners looking for coverage must accept offers from private companies if they are within 15 percent of the rate Citizens would offer. In a recent meeting, Citizens vice president of consumer and agent services Steve Bitar told the Actuarial & Underwriting Committee that customers could see bids to insure their home as soon as 30 seconds after submitting their information into the system. But, the clearinghouse will start slow. When it opens January 2, only four companies (Florida Peninsula, American Heritage, Safe Harbor and United Property & Casualty) will participate. Also, only prospective new customers looking for a standard homeowners’ policy (HO-3), will be shopped on the clearinghouse when it comes online. Other companies and policy types will be added to the marketplace in phases, with four new companies added at a time. Existing Citizens customers coming up for renewal will be shopped on the clearinghouse beginning in the second quarter of 2014. Citizens has stated that most companies already signed up should be actively participating in the clearinghouse and offering coverage by mid-2014.  For reference, these background documents (hyperlinked) were provided to the Citizens’ Actuarial & Underwriting Committee:

Clearinghouse Product changes

Clearinghouse Update PowerPoint

Citizens Commercial Insurance Suite – Go Live

Personal Lines Underwriting Update

Loss Reports for Sinkhole

It was noted at the meeting that approximately 53 percent of the new business in Citizens continues to come from captive agents, with another sizeable amount from smaller independent agents with limited markets. The clearinghouse will provide these agents with additional private markets. Thomas Popko, Director of Personal Lines for Citizens, provide an update on Citizens depopulation efforts. To date, OIR identified about 900,000 policies for takeout during 2013. However, only 250,000 to 260,000 probably will actually be removed, according to Popko.  Two factors account for the smaller number of policies ultimately taken out of Citizens – duplicative requests are made for some of the same policies; and Citizens policyholders have the ability to refuse to participate in a takeout. However, the ability to veto a takeout disappears when renewal policies began going through the Clearinghouse, so long as private companies’ offers are within 15 percent of the rate Citizens offers.

Citizens   Claims Committee Votes on Program to Conduct Minor Sinkhole Repairs

Members of the Citizens Claims Committee voted unanimously on Thursday, November 14, 2013 to send a proposal for a $50 million program to conduct minor sinkhole-related home repairs to its full board next month. Under the proposal, dubbed the Sinkhole Stabilization Managed Repair Program, Citizens will pay the participating vendors directly for the repairs, rather than its policyholders. The vendors must have been in business for at least five years, have sufficient insurance, have documented proof of experience in sinkhole repairs, provide a five year warranty for all repairs and have employees complete background checks to participate in the program. The contract with vendors would last three years, with the option of two one-year renewals. Policyholders with a sinkhole claim would be able to opt out of the program, but Citizens is looking at making the program mandatory. “The decision to participate in the Sinkhole MRP or select a stabilization contractor outside of the MRP network rests solely with the policyholder. During the operation of the voluntary Sinkhole Stabilization MRP, Citizens will pursue the development and implementation of a mandatory program for sinkhole stabilization services,” a Citizens document detailing the project states.

Sinkhole losses have dropped in recent years for Citizens after the Legislature passed SB 408 in 2011, which uncapped rates for sinkhole coverage, allowing Citizens to seek rates above the 10 percent cap on annual rate increases. Through the first nine months of 2011, Citizens had 3,468 sinkhole claims, compared to 1,007 for the same period in 2013. Even so, Citizens paid out $169 million more in sinkhole claims than it received in premiums in 2012.

Citizens president and CEO Barry Gilway said the maximum $50 million involved in the contract would come out of money that would otherwise go to pay claims, and shouldn’t be considered an additional expense.“ Are these additional dollars? The answer is no,” Gilway told the committee. “We’re just paying for the repairs rather than just writing them a check.”

Sinkhole Managed Repair Program – Summary:

Key Performance Indicators:

Independent Adjuster Requests for Proposal:

All Claims Committee Background Documents:

Citizens Launches Upgrade for   Commercial Lines

Citizens this month continued its companywide modernization with the launch of a much anticipated computer upgrade to coordinate policy underwriting, claims and billing into a seamless and easy to use system. During the first week of November 2013 Citizens began routing all commercial policy operations through the Citizens Insurance Suite, a comprehensive software package that will replace a handful of legacy systems now responsible for new and renewal commercial business. Citizens handles about 39,000 commercial policies. The rollout is the second major release delivered as planned during 2013 as part of a larger effort to transition Citizens computer network to a centralized and more fully automated system that will ultimately handle all aspects of residential and commercial accounts. Prompted by the need to replace aging technology, the suite is allegedly both more agile and cost effective. “The Citizens Insurance Suite will dramatically improve efficiencies and provide better service to both agents and their policyholders,” said Citizens Chief of Systems and Operations Kelly Booten. “We’re pleased with the successful launch for commercial policies and look forward to expanding the system to all lines by the end of 2014.”

The suite will handle all commercial policies renewing after January 1, 2014 for multi-peril policies and February 1, 2014 for wind-only commercial customers. Citizens conducted meetings with agents and began online training in October 2013 in preparation for the November 2013 launch.

Review of November 2013   Legislative Insurance Committee Meetings’ Focus on Citizens

The House and Senate Insurance Committees met during November 2013, with both reviewing Citizens issues. Christine Ashburn addressed the Florida House of Representatives Insurance and Banking Subcommittee and gave an overview of Citizens Property Insurance Corporation’s depopulation efforts.  She also discussed the technical aspects of a takeout, from an insurer submitting a depopulation plan to the OIR to a policy actually being taken out of Citizens.   Ms. Ashburn noted that Citizens is on track to have fewer than one million policies by January 2014 and said that there has been a reduction in new business.  She also highlighted the type of risk Citizens would likely cover if it were a true insurer of last resort.   Ms. Ashburn reviewed implementation of Citizens’ new Clearinghouse, in which 18 insurers are participating.  Four carriers are expected to “go live” during mid-December 2013 as a means of testing the new system (see above). To view the meeting packet and presentations, click here.

The Senate Banking and Insurance Committee, under the leadership of Chairman David Simmons, is focusing on a Citizens bill during the next legislative session that will focus on the elimination of wind-only policies and subsidized rates for Citizens policyholders from out of state or out of the country.  Simmons emphasized these two issues during the Senate Banking and Insurance pre-session committee meeting. There also was a resumption of discussions concerning the need to reduce Citizens huge exposure in commercial/residential lines – primarily buildings owned by condominium associations. The legislation Chairman Simmons introduced initially during the 2013 legislative session increased Citizens rates, tightened eligibility and addressed a couple of dozen other major areas in an initiative to restore the program to a true residual market. What the Legislature finally passed was much narrower – creating the Clearinghouse Program taking effect January 1, 2014 and setting up a Citizens inspector general. In an effort to further reduce the size and scope of Citizens, Simmons insisted that Citizens should determine precisely which of its policyholders live outside of Florida and outside of the U.S. and receive non-actuarially sound premiums. Simmons mentioned 180,000 policyholders who are or may be non-Florida residents and said they are paying 13 to 19 percent less than they should be. Simmons suggested Citizens should find out for certain, through checking Homestead Exemption records or requiring the place of residency to be stated under oath when renewals are processed. Many of Citizens’ multi-peril policyholders in the Personal Lines Account are paying at or near actuarially sound rates, Simmons stated. The most severe inadequate rates and rate subsidization are occurring in the wind-only Coastal Account.

OIR Issues a Primary Flood Option   Informational Memorandum

As previously reported, the Florida Office of Insurance Regulation (“OIR”) issued Informational Memorandum OIR-13-03M (“Memorandum”), to insurers exploring the feasibility of writing primary flood insurance in Florida. Section 239 of the federal Biggert-Waters Flood Insurance Reform and Modernization Act of 2012 provides that private flood insurance sold by licensed insurers may satisfy requirements for flood coverage established by Fannie Mae or Freddie Mac.  As a result, various insurers have expressed interest in offering coverage in Florida. The five-page OIR Memorandum, not intended to be comprehensive in scope, contains information and suggestions for insurers considering entering the Florida market on required demonstration of financial capacity and options for developing rates and forms for primary flood coverage.  It reflects the OIR’s initial review of federal and state legal requirements that might apply to the issuance of private flood coverage. The Memorandum is attached in PDF format.

In addition, while ongoing interest remains from a number of carriers concerning the ability to write primary flood coverage in Florida, Florida Senator Jeff Brandes has signaled his intent to move forward legislation easing barriers to companies interested in providing such coverage. His press release regarding this issue follows:


Bill will give consumers more flexibility over their flood insurance policies

St. Petersburg, FL- Today Senator Jeff Brandes (R-St. Petersburg) announced that he is drafting comprehensive legislation that will allow private insurers to offer alternatives to the National Flood Insurance Program (NFIP) in Florida. Citing a recent congressional proposal to delay the implementation of the Biggert-Waters Act by four years, the Brandes legislation will allow insurers to utilize that delay to establish additional, more affordable choices for consumers.

“I applaud the efforts underway in Congress to delay the implementation of the Biggert-Waters Act, but Washington is only kicking the can down the road,” stated Senator Brandes. “The disastrous impacts from NFIP rate increases are still looming on the horizon, and our residents deserve to have choices when it comes to flood insurance. I believe such freedom and flexibility will help reduce some of the financial burdens imposed by the unfair rate increases in the NFIP.”

The Brandes proposal will establish new governing statutes in the residential surplus lines insurance marketplace, allowing private insurers to provide more options for flood insurance coverage. Insurers will be given flexible rate territory definitions to spread risk across the state. Consumers will be given broad flexibility to make choices regarding their deductibles, varying types of additional coverage, and the hallmark of the proposal—the ability to purchase minimal flood insurance coverage for the amount of the mortgage or maximum coverage for full replacement cost.

Senator Brandes has been working with the Senate Banking and Insurance Committee, the Office of Insurance Regulation, and private sector stakeholders on the proposed legislation which he intends to file by the end of 2013. If the legislation is passed and approved by the Governor, Floridians will be able to purchase affordable and tailored private-market flood insurance before the rate increases in the Biggert-Waters Act take effect again in four years.

CFO Amends and Republishes Draft ICA   Legislation on Homeowners’ Claims Issues

Logan McFadden, Chief Financial Officer Jeff Atwater’s chief legislative aide, reissued draft legislation developed by former Insurance Consumer Advocate Robin Westcott’s Homeowners Insurance Bill of Rights Working Group. Due to extensive meetings with industry, a scaled back package of recommendations which will serve as the basis for the Department of Financial Services (DFS) recommendations to the Legislature for the 2014 session has emerged. The revised package does not include proposed new restrictions on Examinations Under Oath, restoration of the insurer report card program which DFS was unable to successfully implement when it was on the books several years ago, and other controversial recommendations. The draft legislation is attached for your review and comment. Please provide any insights or commentary directly to Donovan Brown at

Florida Officials Back Mississippi   Lawsuit Against NFIP

Florida endorsed a Mississippi federal lawsuit during the week of November 11, 2013, challenging the Federal Emergency Management Administration’s decision to raise rates in the National Flood Insurance Program. Governor Rick Scott, Attorney General Pam Bondi and Chief Financial Officer Jeff Atwater had announced on October 10, 2013 that they planned to file an amicus brief in the U.S. District Court for southern Mississippi. The brief, announced by Scott and Bondi during the week of November 11, 2013, made four main arguments:

  • That FEMA should have to complete studies required by a 2012 flood insurance reform act before setting new rates;
  • That FEMA has implemented the National Flood Insurance Program, as amended in 2012, in an “arbitrary and capricious” manner;
  • That new premiums fail to consider affordability; and
  • That FEMA did not use “accepted actuarial principles” and consider actual risk, when setting new rates.

“FEMA, under the guise of expediency, may not ignore the express mandate of Congress, which requires the completion of the requisite studies and consideration of affordability. FEMA may only act within their statutory authority; to do otherwise ignores the separation of powers, a cornerstone of our democracy,” said the state’s brief. “FEMA’s failure to delay implementation of the rate increases is unacceptable. FEMA is proceeding arbitrarily without first obtaining all the requisite studies and information, contrary to congressional intent and the best interest of the citizens of the states of Florida, Alabama, and Mississippi who have been harmed by onerous rate increases,” it said. “This court should compel FEMA to take the economic impact to families and homeowners seriously, as so many members of Congress have pleaded in the weeks leading up to the implementation of the premium rate increases.”

Governor Scott called for President Obama to intervene and make FEMA curb its new flood insurance rates. “We are supporting Mississippi in their lawsuit against FEMA because the NFIP rate hike will not only hurt Florida families but will devastate our real estate market,” Scott said in a prepared statement. Attorney General Bondi said, “Floridians are facing outrageous, unaffordable flood insurance premiums, and we support all efforts to protect policyholders from these devastating insurance rate increases.”

On November 19, 2013, the Tampa Bay Times reported that a bipartisan group of senators said they will try to amend a defense bill with a proposal to stop the increases in flood insurance rates affecting Florida and other states. Calling the National Defense Authorization Act “must-pass” legislation, Florida Senator Bill Nelson said, “We need to get this legislation amended onto it and get it signed into law.” Sponsors of the amending provision include Senator Nelson, Senator Mary L. Landrieu (D-LA), Senator Johnny Isakson (R-GA), Senator Robert Menendez (D-NJ), Senator David Vitter (R-LA), Senator Heidi Heitkamp (D-ND), Senator Thad Cochran (R-MS), Senator Charles Schumer (D-NY), Senator Kirsten Gillibrand, (D-NY), Senator Elizabeth Warren (D-MA), Senator Mark Begich (D-AK) and Senator Joe Manchin (D-W.VA).

Demotech Offers Opinion to Florida   CFO Jeff Atwater on Reinsurance Cost Savings Question

Suggesting that the cost of repairs relating to damage claims has contributed to the steady increase in Florida insurance rates, Demotech President Joe Petrelli offered his “unsolicited response” to the second of two recent letters from Florida Chief Financial Officer Jeff Atwater to Florida Insurance Commissioner Kevin McCarty.   In the letters, CFO Atwater questioned why property insurers are not passing along their reinsurance cost savings to Florida policyholders. In his letter to CFO Atwater, dated November 7, 2013, Mr. Petrelli states that Demotech’s position on reinsurance is ” . . . likely to remain that consumers benefit when their insurers purchase more vertical and horizontal protection annually as opposed to the same amount of protection or less.”

Demotech’s letter is attached for review.

Insurers Must Give Commercial,   Residential Property First-Party Claimants Notice of Right to Participate In   Florida Mediation Program, Proposed Rules Say

The Florida Department of Financial Services Division of Consumer Services has advised that proposed amendments to Rule 69J-166.002, “Mediation of Commercial Residential Property Insurance Claims” and Rule69J-166.031, “Mediation of Residential Property Insurance Claims,” would update subparagraphs (4)(a)1. of both Rules to conform with changes made by Chapter 2012-151, Laws of Florida, and the opinion of the Third District Court of Appeal in Fernando Subirats v. Fidelity National Property, 106 So. 3d 997 (Fla. 3rd DCA 2013).

To view the Notice of Proposed Rule, click here.

If requested by November 28, 2013, a hearing will be scheduled for December 3, 2013 in Tallahassee (Room 142, Larson Building, 200 E. Gaines St.).

The revisions provide that an insurer must give a policyholder notice of his or her right to participate in the appropriate mediation program prescribed by the Rules at the time the policyholder files a first-party claim.  The proposed amendments also substitute the word “policyholder” for “insured” in the Rules. Both Rule 69J-166.002 and 69J-166.031 implement Section 627.7015, F.S.  The mediation programs (“programs”) they establish are prompted by what has been determined to be a critical need for effective, fair and timely handling of both commercial residential and residential property claims.

The programs are available to all first-party claimants and insurers prior to commencing the appraisal process set forth in their policies or commencing litigation.  They are also available to litigants referred to the DFS from Circuit or County court.  For claims that have not previously been mediated under any DFS mediation program, the procedures described in these Rules are available to all commercial residential or residential property claims for property located in the State of Florida.  These Rules do not apply to commercial insurance, private passenger motor vehicle insurance, or to liability coverage contained in property insurance policies, nor do they apply to policies issued under the National Flood Insurance Program.  Before resorting to these procedures, policyholders and insurers are encouraged to resolve claims as quickly and fairly as possible.

 Hearings and Meetings

The Florida House Insurance and Banking Subcommittee will not meet for December committee week. However, the Florida Senate Banking and Insurance Committee will meet on Tuesday, December 10. The agenda has not yet been published.

2013 Hurricane Season ‘One of Largest Busts’ Ever for CSU Forecasters

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November 20  |  Hurricanes, News  |   Danielle Szeliga

Opinions of the Atlantic hurricane season presumably would differ greatly depending on perspective.

For homeowners and insurers, the season’s inactivity was welcomed. For hurricane prognosticators like the well-known duo at Colorado State University, the season was a dud.

“It was one of the largest busts for our research team in the 30 years we’ve been issuing this report,” says Phil Klotzbach, CSU research and author of annually anticipated reports from the university on projected Atlantic hurricanes, in a statement.

This year—the quietest for hurricanes since 1995 and the first time in nearly two decades there wasn’t a single major storm (Category 3 or greater)—Klotzbach and mentor William Gray struck out, but they know it comes with the territory.

In April the team predicted 18 named storms, nine hurricanes and four major hurricanes for the 2013 season.

The Atlantic Ocean produced 13 named storms, two hurricanes and no major hurricanes. Two hurricanes is the fewest during a hurricane season since the same amount formed in 1982.

CSU’s April report showed a good probability—72 percent—of a major hurricane making a U.S. landfall. In all, there were a mere 3.75 hurricane days in 2013. CSU’s initial forecast predicted 40 days, adjusted to 35 days in an August update. The last major hurricane to hit the U.S. was Wilma in 2005.

“These seasonal forecasts should be judged on their overall track record of success, not on a single or a few unsuccessful seasonal forecasts,” Klotzbach adds.

Progressive CEO: ‘What Does an Insurer Look Like in the Future?’

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November 15  |  News, Progressive  |   Danielle Szeliga

As driverless car technology becomes a reality, Progressive Corp. President and Chief Executive Officer Glenn Renwick said he’s excited about the insights his usage-based insurance technology will provide for figuring out an insurer’s role in cars of the future.

The technology, which Progressive calls Snapshot, provides a window into what goes on inside vehicles and gives the company food for thought for covering the needs of the automobile insurance market of the future, Renwick said during Progressive’s quarterly conference call with investors.

“We’ll be starting to ask, what does an insurer look like in the future?” Renwick said. “I suspect that has a lot more to do with information that comes from the car than the classical segmentation with regard to characteristics of the driver.”

Renwick brought up paradigm shifts in other industries when he spoke of the future of auto insurance and driverless cars, and how to make that transition a smooth one. He mentioned photography and its move away from film and into the digital space.

“The fact is the world takes a lot more photographs today than they ever did, you had to figure out what was important in that transition,” Renwick said. “So we’re always looking to see what’s important.”

While it might have implications for Progressive in the future, the company is currently pushing Snapshot as a way to give its customers a discount based on their driving habits. Snapshot is a device that plugs into a car’s diagnostic port and records various metrics — the results can mean savings and guide customers into a price point that “simply not available at a new for new comparison,” Renwick said, aiding retention.

“Once you’ve established yourself with the renewal, I sometimes call it an absorbing state,” Renwick said. “You have a rate that truly reflects your driving behavior, no one else can know that in the marketplace on a new quote. So the retention benefit of Snapshot has been one of the No. 1 issues that we’ve always been focused on.”

Still, Renwick said the company has very few customers that have been with Snapshot for “five and six and seven years.” He said: “We actually look forward to understanding what the long-term dynamics of those customers will be.” Renwick said the company’s rate at the market level is competing well to draw people in and then make the Snapshot offer. He said about 36% of customers shopping on a direct basis are taking the company up on Snapshot, which is up from a previous study in which 40% of people said “no way” to the product (Best’s News Service, Aug. 8, 2013).

Drawing customers in at the market level is important for Progressive, because most potential customers do not know if they will be offered a discount through Snapshot. Progressive tried to get people to test drive the device and get quoted the rate without switching their current insurance (Best’s News Service, July 9, 2012). But that effort has fallen flat, Renwick said.

“Very personally hoping Test Drive would be a great opportunity for us to reach out to a different set of customers … for the most part those numbers have proven to be relatively small and as a result we will continue to try things, but in the spirit of Progressive, some things we try work really well and some things don’t work as well as we expected. I would tell you Test Drive has not produced the numbers that we might have liked.”

Progressive has also found limited success in licensing its patented usage-based insurance intellectual property. So far four companies have signed on for licenses, one of which was USAA. Progressive in the past had been litigious in defending its usage-based technologies.

Most Progressive Corp. companies currently have a Best’s Financial Strength Rating of A+ (Superior). During afternoon trading on Nov. 14, shares of Progressive Corp. (NYSE: PGR) were at $27.39, up 1.18% from the previous close.

10 Reforms to Fix Florida’s Property Insurance Market Without Raising Rates

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November 14  |  Florida, News  |   Danielle Szeliga

On the heels of certain reforms in Florida’s 2013 Legislative Session, the James Madison Institute and the R Street Institute released a policy study that outlines pragmatic reforms that would have a meaningful effect on stabilizing the Florida property insurance market without requiring big hikes in primary insurance rates.

The study — titled “Ten Reforms to Fix Florida’s Property Insurance Marketplace – Without Raising Rates” — reports that, despite storm risks, Florida has seen its population and its built environment grow dramatically; growth has increased the state’s coastal exposure by $2.9 trillion, the most of any state.

Additionally, the report notes that the property insurance market is plagued by uncertainty, government intrusion and regulatory overreach, and that there is an ongoing risk that multiple government agencies might levy assessments on property insurance policies after a major storm or series of lesser storms poses a meaningful risk.

“What makes Florida unique is not only the meteorological risks it faces, but its political, regulatory, tort and judicial environment,” writes R Street Senior Fellow R. J. Lehmann (pictured), the study’s author. “For too long, Florida has bet its public safety and fiscal health on the weather, but the state’s ongoing, statistically implausible winning streak cannot continue indefinitely.”

Reforms recommended include:

1.     Implement the Hager incremental Cat Fund reduction plan

  • To take advantage of falling private reinsurance rates, gradually reduce the Cat Fund’s mandatory coverage by $3 billion over a three-year period, but allow an “override” in an emergency situation or if private reinsurance rates spike to permit the Cat Fund to return to offering up to $17 billion in coverage.
  • Revamp the current nine-member Cat Fund Advisory Council to include financial advisors, actuaries and other experts.

2.     Establish requirements for “assignment of benefits” provisions

  • Third parties that enter “assignment of benefits” arrangements with insureds should be bound by the same contract requirements as the original policyholder.
  • To protect consumers, assignment of benefits agreements should include an opt-out period for those who may have felt compelled into signing over their insurance benefits under pressure by a vendor or the stressful circumstances surrounding a claim.

3.     Implement incremental Citizens eligibility reform with a “circuit breaker”

  • Increase the eligibility standard for Citizens – currently at 15 percent— by 2.5 percentage points until it reaches 100 percent.
  • To avoid rate increases, the hike in eligibility requirements would take effect only in years in which overall prices decline.

4.     Allow excess and surplus lines carriers to do voluntary take-outs from Citizens

  • Only surplus lines insurers meeting strict financial criteria should be allowed to take policies out of Citizens.
  • They should maintain at least $50 million in surplus; receive or maintain an A.M. Best Financial Strength Rating of A- or better; maintain resources to cover a 100-year probable maximum loss at least twice in a hurricane season; and gree to provide coverage substantially similar to that of Citizens.

5.     Remove non-primary residences from Citizens and continue reduction of Citizens’ maximum coverage

  • Continue annual reduction in Citizens’ coverage limit for two additional years, until it reaches $500,000.
  • Examine an effective way of removing non-primary residences from Citizens.

6.     Expand 2013’s coastal preservation concept to bar other state programs from providing coastal subsidizes

  • End government-funded incentives for development seaward of the CCCL and in areas lying within the Coastal Barrier Resources System, with exceptions for public safety, wildlife protection and recreation.
  • Private citizens should be free to develop their own land at their own expense, but government should not fund, subsidize or otherwise encourage development in high-risk and/or environmentally sensitive areas.

7.     Implement tough, new Citizens and Cat Fund conflict-of-interest policies and make protecting taxpayers a focus of both entities

  • Reexamine both Citizens and the Cat Fund’s core missions to include protecting taxpayers as a focus of each organization.
  • This may require: taxpayer-protection clauses as part of the job descriptions of all senior management; requiring an annual hearing on taxpayer protection; requiring an independent report on taxpayer protection each year that examines discretionary expenditures and organizational actions taken to reduce the likelihood or severity of post-hurricane assessments.

8.     Create an expert panel to advise the state on the use of RESTORE Act funds

  • Create an ad hoc panel of experts and task them with advising the state on how to best invest RESTORE Act funds on eligible projects that yield the greatest hurricane mitigation benefits

9.     Establish fair settlement procedures

  • Treat first- and third-party claims in the same manner.
  • Require all claimants to submit written notification to the Department of Financial Services of an insurer’s failure to pay a claim, waiting at least 60 days before filing a lawsuit alleging bad faith during this period by tendering either the amount demanded in the notice or the applicable policy limits.
  • Require third-party claimants to provide basic notice to an insurer of his or her loss ad establishing a set, reasonable time frame – such as 45 days – for an insurer to pay either an agreed-upon amount of the policy limits.

10.   Require an annual report on the combined post-storm bonding capacity of Citizens, the Cat Fund and the Florida Insurance Guaranty Association

  • Direct the Investment Advisory Council of the State Board of Administration to provide an annual report estimating the bonding capacity of Citizens, Cat Fund and FIGA, taking into account the possibility that all would seek to execute bond issues in close proximity to one another following a hurricane season that adversely impacted Florida.

“Loopholes in the legal process have created fraud, increased litigation and unprincipled claims practices,” said Dr. Bob McClure, JMI president and CEO. “It’s unfortunate that interconnected policies pursued by the Legislature, previous governors, and the Office of Insurance Regulation have led to a dysfunctional property insurance system – one that has distorted pricing, undermined competition, and placed a heavy burden on the state’s taxpayers.”

In summary, the study encourages the Legislature to shrink its state-run, taxpayer-backed entities – Citizens Property Insurance and the Cat Fund – to decrease the likelihood or severity of post-hurricane taxes that could threaten to impair the state’s economic recovery. Additionally, the Legislature should take steps to address cost drivers that are adversely impacting consumers, even during these hurricane-free years and ultimately find market-based ways to discourage risky development in coastal areas also as to make Florida more physically resistant to storms.

“Although the ten proposals outlined in this study would not solve all of Florida’s insurance-related problems, they could make significant headway without raising rates on consumers during a fragile economic recovery,” said Lehmann.

Texas Brine’s insurer says company ignored Assumption Parish sinkhole warnings

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November 13  |  Liberty, News, Texas Brine  |   Danielle Szeliga

One of the insurers for Texas Brine Company has filed a lawsuit accusing Texas Brine of ignoring warnings about the potential for disaster if it continued mining an Assumption Parish salt dome cavern. The suit arises from the massive sinkhole created after the cavern collapsed in 2012.

Liberty Insurance underwriters Inc. says in the federal lawsuit that Texas Brine’s own people and others warned for years about the potential problems. The lawsuit cites internal company reports, memos and an email suggesting Texas Brine officials were warned with increasing specificity since the mid-1970s — before the cavern was even permitted and mined — that the area where the cavern was planned was close to the salt dome’s outer face, according to The Advocate.

Liberty, which faces $50 million in exposure as Texas Brine’s third insurer in line, is asking U.S. District Judge Lynne Hughes in Houston to declare the company does not owe Texas Brine under the policy because of their prior knowledge.

In a statement Tuesday, Texas Brine denied “many of the specific allegations made in the suit,” including Liberty’s claims that there is no coverage under its policy.

“For many months, we have been working closely with our insurers to resolve issues between us, and it is unfortunate that Liberty filed this suit at this time, particularly since information provided to Liberty in confidence was inappropriately used in making these claims,” the Texas Brine statement says. “We will deal with this issue in the litigation.”

Liberty’s lawsuit quotes internal documents portraying Texas Brine as pushing back against suggestions from the one-time well owner, Vulcan Materials Co., to mine the cavern at a shallower depth than had been planned to avoid the deeper trouble areas.

“Texas Brine knew in 1998 that the western wall of Oxy Geismar #3 was already ‘precariously’ close to the edge of the salt dome, and that to continue increasing the level of salt reserves mined could ’cause a disaster,'” the Liberty lawsuit concludes.

The Liberty suit was filed Oct. 22 in U.S. District Court in Houston. A status conference has been set for 10 a.m. on Jan. 13 before Hughes.

Liberty, which faces $50 million in exposure as Texas Brine’s third insurer in line, is asking Hughes to declare the company does not owe Texas Brine under the policy because of their prior knowledge of the risks.

The sinkhole is now 26 acres, has led to a 15-month evacuation of about 150 homes in the Bayou Corne and Grand Bayou communities, home buyouts, the emptying of surrounding storage caverns and a barrage of lawsuits against Texas Brine and Occidental Chemical Corp., a New York-based company from which Texas Brine leased the site.

Texas Brine mines caverns from deep, solid columns of salt known as salt domes with wells drilled and pumped with fresh water. The water dissolves the salt and leaves behind a cavity. The watery brine byproduct is shipped by pipeline to petrochemical plants.

Homeowners deserve answers on property insurance rates

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November 12  |  News  |   Danielle Szeliga

It’s a pretty simple question. Why aren’t property insurance rates dropping now that insurance companies are paying less for the reinsurance they purchase to cover claims?

After all, the companies often react to rising reinsurance costs by requesting rate increases. With reinsurance costs dropping an estimated 15 to 20 percent, shouldn’t the companies be offering comparable rate decreases?

To his credit, state Chief Financial Officer Jeff Atwater has been trying to get an answer to that question since August. So far, he’s been told it’s not that simple, and he’s been promised a study from the Florida Office of Insurance Regulation that will analyze how reinsurance costs affect rates.

Not exactly the answer Atwater wanted, but it’s a start and will hopefully shed some light on the reasons the rates don’t automatically decrease when reinsurance costs drop.

The insurance companies say it’s not a simple formula. Rates depend on the overall cost of doing business, not just the cost of reinsurance. Some years when reinsurance costs rise, the companies are denied rates increases, and they spread those costs over years. Different companies purchase different amounts of reinsurance, and some companies may not be experiencing a drop in reinsurance costs.

Those reasons sound perfectly logical. But they skirt around the fact that the companies invoke higher reinsurance costs when raising the rates.

That’s really what Atwater is getting at. “Year after year, insurance companies have been telling their customers and the Legislature that the ‘simple’ explanation for the higher rates they are charging was due to reinsurance costs going up,” Atwater writes in a letter to Kevin McCarty, the commissioner of the Florida Office of Insurance Regulation. “Furthermore, they made presentations that if reinsurance rates were to fall they would pass those savings along to their customers. But now that insurance companies are experiencing a significant decrease in the cost of their reinsurance, they are not lowering costs for consumers.”

Atwater has also been told it may be early yet for the drop in reinsurance costs to have affected rates.

And there is evidence some may be dropping. As the Tribune’s James L. Rosica reported, insurance companies have filed nine requests for rate decreases since July, with four approved.

Of course, more than 20 requests have been made to raise rates.

It might be asking too much for the study underway to result in lower insurance rates. But the study might still be considered useful if it manages to shed some light on why the insurance companies make it sound so simple when they want to raise the rates, and so complicated when they are asked to lower them.

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