Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

The state has argued that the “48 hour rule” protects policyholders at a time when they are vulnerable after a loss. Julie Patel has reported on the 48 hour rule in her series with the Sun-Sentinel. In her article last week, Patel asked her readers to weigh in on how they felt about being contacted by a public adjuster after a loss. At the time of this posting, and after more than a week of collecting data, eighty one percent of those who responded said they were in favor of being contacted right after the loss. Twelve percent of the voters preferred not to be contacted, while six percent preferred written information about the services offered by public adjusters and preferred not to be called or visited right away.

Click here to weigh in on the debate and see the instant polling results.

Based on the data collected so far, it appears that the Legislature’s alleged reasoning for protecting insureds with a solicitation ban was off-base. It also appears the public wants to know more about the services a public adjuster can offer when in comes to presenting a claim to an insurance company.

As soon as the ruling is made in Jeffery H. Atwater v. Frederick W. Kortum, we will update our readers.

Patel points out that since 2006, eight property insurance companies in Florida have gone insolvent and insureds with more than 55,000 claims have been forced to deal with the Florida Insurance Guaranty Association (FIGA) for their insurance claims.

We have posted about FIGA in several other posts including, When Insurance Companies Go Under - The Fallacy of FIGA and FIGA is the New Slow Paying and Litigation Threatening "Insurer" in the Florida Property Insurance Claims Game.

The Florida Insurance Guaranty Association was created by legislation in 1970 as a non-profit organization that has a duty to settle claims in accordance with the FIGA Act, the policy, and Florida insurance laws, in a timely manner.

The husband/wife team at Public Adjusters Incorporated, led by President Daniel L. Guilfoyle, III and Vice President Rosemary Guilfoyle, has extensive knowledge of the insurance industry’s ever changing landscape. Dan Guilfoyle was contacted by Julie Patel about his experience as a public adjuster handling claims that had been turned over to FIGA.

Dan mentioned to a policyholder who lost $25,000.00 after his claim was turned over to FIGA. Dan told me the story. Dan’s company was hired as the public adjuster for two separate clients. Both insureds had purchased insurance policies from Northern Capital, and both suffered covered water damage losses. Before Northern Capitol was declared insolvent, both policyholders participated in the policy’s appraisal process to determine the amount of the loss Northern Capital would pay.

Northern Capitol named its appraiser and happened to use the same appraiser on both claims. Likewise, the same umpire was appointed on the two water claims. Both policyholders received signed appraisal awards of damages owed by Northern Capital. But Northern Capital didn’t pay, and FIGA was ordered to step in because Northern Capital was insolvent.

Dan recounted what happened next but said it was unexplainable… FIGA paid one award in full (minus the FIGA deductible), but FIGA determined that the $69,000.00 award for the other insured was not going to be honored. FIGA required that loss be adjusted from scratch by a FIGA adjuster. This policyholder was first delayed by FIGA’s rejection of payment on the signed appraisal award and then further delayed as FIGA began its own evaluation of the damages. FIGA then determined the damages for the loss only totaled some $24,000.00. Dan said that explaining FIGA’s response and actions to his 80-year-old client was beyond difficult. To make matters worse, the policyholder had listed his home for sale and a pending sale fell through because of the water damage claim that had not been resolved. Dan and the team at Public Adjusters Inc. were able to increase the claim amount further, but FIGA ultimately paid $25,000.00 less than the original appraisal award signed on the claim.

Julie Patel interviewed the former vice-president of Northern Capital. He did not understand why FIGA started over on many of the claims. “It wasn't particularly cost-effective for them to start over, especially [because the contractors estimating damage for Northern Capital] in many cases charged significantly less than the FIGA" estimators said Alex Blain-Cruz.

Florida policyholders who are dealing with insurance claims with an insurance company on the brink of insolvency or in court-ordered receivership may have all the more reason to hire a professional public insurance adjuster. The delay of the claim process, potential new claim deadlines, and claims adjustment red-tape require the dedication, determination, and experience that many public adjusters can provide.

Here is a link to the Florida Department of Financial Services that shows the Florida insurance companies that are officially in financial trouble.

The numbers from Patel’s article:

There are 47,040 adjusters on staff at Florida insurance companies, including those based outside the state; 29,022 independent insurance adjusters who can be hired by insurers to work on claims; and 2,602 public insurance adjusters, who are hired by policyholders.

The state received 246 complaints about public adjusters since February 2010 -- compared to 69 against insurers' adjusters, according to the state's Department of Financial Services, which handles and looks into the complaints. Another state agency, the Office of Insurance Regulation, regulates and investigates insurance companies.

Patel points out that complaints against insurance company adjusters may not be a fair comparison because consumers may have filed complaints against their insurance companies instead of the individual insurance company adjuster.

The state received 27,138 claims-related complaints against insurers since 2008, … A spokesman for the insurance regulation office could not say how many were investigated.

Patel has crunched the numbers and determined that “when Floridians complain that an insurance company's claims adjuster is mishandling, lowballing or delaying claims, there's a less than 16 percent chance the adjuster will be disciplined.”

Another issue to consider is whether the complaint forms that have been filed by Floridians accurately reflect the number of insureds who have valid claim problems.

The complaints reviewed in the article were filed by consumers on the Department of Financial Services webpage. But finding and filing a complaint against an insurance carrier or adjuster takes some determination. The homepage of the Department’s webcite does not provide any information about how to find or file a complaint.

On the Florida Department of Financial Services home page, there are two links geared towards consumers. Under what the department calls “Services,” one can elect to review Citizen Resources or Consumer Protection pages. But neither of these pages leads to the complaint form. It takes nore time and effort to stumble upon the right links.

This is how to find the complaint form.

Starting on the DFS home page, click on the Consumer Protection link. Once on that page, look for the link to Consumer Assistance. Once on the Consumer Assistance page, click the Consumer Help Online link, and the page will change. On the left side, there is a large graphic that says CONSUMER HELP ONLINE. On the right side, the page promises, “The Division of Consumer Services is ready to assist you with your insurance concerns.”

Under this section, there is another link to REQUEST INSURANCE ASSISTANCE.

Finally, the complaint form is found after clicking on the, “Request Insurance Assistance” link.

It seems strange that the complaint form is not called “Complaint Form” or given a title that would indicate it is the document consumers need to file a complaint against their insurance company and request help.

The phrase “REQUEST INSURANCE ASSISTANCE” could be interpreted by some as a resource for finding or buying insurance, or understanding the different kinds of insurance. When policyholders have a claim in Florida and they are looking for help with their insurance company, they already have insurance. What they need claim assistance.

If the department wants to help policyholders it could make the form easily available and name the form – COMPLAINT FORM.

And perhaps, if the Department made the form available on the home page or had a link to it on the homepage, more information would available to accurately show the number of Floridians who feel their insurance claim is not being handled properly.

Last week, Citizens’ executives gave a presentation on Citizens’ financial health to Governor Rick Scott and the Florida Cabinet. Among other things, the presentation anticipates where funds will come from if there is a catastrophic loss in Florida in 2011. The report estimates that Citizens will be able to fully pay all its claims from a “1 in 5 year” hurricane event with its accumulated surplus. However, if a “1 in 25 year” hurricane event were to occur, Citizens would be required to seek additional funds from the Florida Hurricane Catastrophe Fund (FHCF) to pay claims. If a “1 in 50 year” hurricane event, or a “1 in 100 year” hurricane event were to occur, Citizens would have to seek funds from reinsurance, surcharges, and assessments.

Julie Patel, of the South Florida Sun-Sentinel, also reported on the presentation by Citizens’ executives. Based on Citizens’ estimations and Patel’s further calculations, the average Citizens policyholder could be subject to over $1,000 in additional fees if a major hurricane, the kind that is only expected to hit once every 100 years, were to hit Florida in 2011. According to Patel, these additional fees could amount to:

• An additional $1,003 for the average Citizens policyholders who pay $3039 combined on their home and car insurance policies.

• An additional $323 for the average policyholder who is not with Citizens and pays $2,522 on their policies.

• An additional $47 a year for Citizens policyholders over the next 29 years.

• An additional $39 a year for non-Citizens policyholders during the next 29 years.

Although these additional costs are not expected to be charged back to Citizens and other policyholders unless there is a major hurricane this year, the possibility of paying these costs may not be readily apparent to policyholders. Thanks to Julie Patel for her clear quantification of how much policyholders may be required to pay if a “1 in 100 year” hurricane hits this year.

Florida Senator Gwen Margolis from Miami stated, "I have never seen anything in the Florida Legislature that is as anti-consumer as this." Julie Patel, of the Sun-Sentinel, reported on the bill's passage in Sweeping Property Insurance Package Headed to Full Senate. She noted the apparent lack of gravity and of concern for consumer interests by Florida Senators in their actions on this bill:

Changing the name of state-backed Citizens Property Insurance to Taxpayer Funded Property Insurance. Lawmakers need to have to some fun, said Sen. J.D. Alexander, R-Lake Wales, before proposing the change. Legislators said provisions of the bill are needed in part to help shrink Citizens' costs because nearly all Floridians are on the hook to pay fees if Citizens has major deficits after hurricanes.

I was happy to read in Patel’s article that House Representative Matt Gaetz took a leadership position and stood up to the insurance industry in this debate:

The committee rejected Richter's proposed change to make Citizens exempt from a so-called bad faith law that effectively allows policyholders who win lawsuits against the insurer to collect attorneys' fees instead of subtracting the money from the claims payouts. Critics say Citizens delays or lowballs claims at times and should be subject to the same laws that hold private insurers accountable for good customer service.

"If it were proven that because of poor management or [arrogance] that Citizens had acted in a number of occasions in bad faith, I think it would affect your job because we'd look" to find other managers, said Matt Gaetz, R-Fort Walton Beach. "Why do you think the government should treat people worse than private companies?"

It should be noted that Matt Gaetz and his father, Florida Senator Don Gaetz, are from the Florida panhandle and understand the problems caused by slow paying, delaying, and denying insurance companies following Hurricnae Ivan. As I noted in Policyholder Advocate Matt Gaetz Picks Up Endorsement From Jeb Bush, Senator Don Gaetz previously proposed the following pro-policyholder insurance legislation:

1. SB 964 - Insurer has a fiduciary duty to treat those it insures in good faith
2. SB 960 - Civil Remedy against Citizens Property Insurance Corporation
3. SB 962 - Requiring insurance companies to adopt and implement standards to follow when adjusting claims to reach a proper settlement

In the same post, I noted an alarming and accurate reflection by a Citizens Insurance Company spokesperson regarding the motive of many private insurance companies to delay, deny and not pay claims:

Citizens Spokeswoman Christine Ashburn told legislators the insurer isn't pressured to produce profits or dividends like private insures so it has no incentive to deny claims unfairly. "Whether or not we pay claims doesn’t change my salary or my president's salary," she said.

The implication is that private insurers have such a motive. In a post, Is Claims Management Only Concerned About Overpaying Claims?, I commented on this motive and outcome-oriented mindset of many private insurance companies:

Nowhere in the article is there any mention of a problem caused by adjusters underpaying their customers' claims. I first came across the term "leakage" in a McKinsey and Company analysis of the USAA claims organization done in the late 1980's. The analysis focused on various changes which needed to be made so that USAA could recover "opportunities" caused by "leakage" in the claims handling process. Again, the study never discussed any problem with adjusters cheating customers by underpaying claims. In all the management metrics that I have ever read, I have never seen one where a claims manager received a bonus because the unit or group he supervised had the lower "underpayments" to customers.

Instead, claims management is for reducing claims severity or lowering the loss ratio to premiums. Indeed, has anybody seen an industry article questioning that the claims industry should be concerned about underpaying claims? The entire culture seems to be about driving down claims payments rather than getting the payment right. I am not picking only on State Farm. Most major insurance carriers have some form of re-inspection. The former re-inspector explained it to me in his videotape.

Typically, he would go out with less experienced adjusters or adjusters whose "severity payments" (the average amount paid on claims) was above levels acceptable to management. He would critique the claims handler's activities to show where claims payments could have been reduced so that new adjusters would learn and the higher paying adjusters would be brought back in line with the group. I asked him if State Farm ever returned money to a policyholder where he found a mistake that resulted in an underpayment.

He responded:

"Chip, you don't get it. My job was not to make certain that the payments were right. My job was to make certain that the problem of overpayments was stopped."

Hopefully, the anti-consumer parts of the Senate bill will be removed so that longstanding consumer protections will continue, or even be strengthened. There is an obvious need for the strongest insurance consumer protections mandated in law, as demonstrated from actual experience and from statements by those in the insurance industry.

Julie Patel provided the highlights of the proposed legislation in Hefty Rate Hikes Proposed for Citizens Insurance Policyholders:

Allow policyholders' premiums to rise by up to 25 percent, not including rates for sinkhole coverage or for private catastrophe backup coverage.

Prohibit policies for customers who find coverage from a private insurer that charges up to 25 percent more.

Require Citizens to drop policies covering homes that cost $500,000 or more to replace by 2016. The deadline would be a few years earlier for homes that cost $750,000 or more to rebuild.

Bar Citizens policyholders from hiring public insurance adjusters to represent them in claims disputes.

Require Citizens to consider outsourcing more of its work, similar to state-backed insurers in other states. The insurer would hire a consultant to make recommendations on the costs and benefits of outsourcing, have its board submit a plan to the Cabinet for approval, and start implementing the plan by 2013.

Some public adjusters may think this legislation will never have a chance of passing. I suggest they read Vote held by Sawgrass Mutual: Policyholders elect to bar themselves from using public insurance adjusters, but were they informed? and get in touch with the hardworking and dedicated leadership of the Florida Association of Public Insurance Adjusters to see what they can do to better inform their legislators.

There may be another factor for the rise in sinkhole claims, according to a Sun-Sentinel analysis of claims and interviews with geologists. The ground in Florida has shifted more quickly in the past few decades as development accommodated the state's growing population. That has triggered damage in homes across the state.

* * * *

"You moved people into an area, change it drastically … and you will increase the whole occurrence [of sinkholes]. We've shown that," said Ann Tihansky, a physical scientist with the U.S. Geological Survey.

Geologists have warned for decades that Florida's development, and pumping groundwater in particular, accelerates the development of sinkholes.

One shining example: When strawberry farmers in Plant City pumped groundwater to save their crops from cold temperatures in early 2010, they triggered dozens of sinkholes.

The growth in the number of sinkholes can't just be blamed on phony claims, said Bill Sinclair, a retired geologist who researched Florida sinkholes for the Geological Survey. "The impact of the population growth has a lot to do with that. There's more well pumping, more unbalance in the system," he said.

As Corey Harris and I were flying back to Tampa on Monday from a hearing in Ft. Myers, I pointed out to him all the obvious sinkholes on farms, ranches and undeveloped lands. They could easily be seen from the air. I remember throwing trash and burning debris on a couple of large sinkholes on my grandfather's ranch in Brandon, Florida, when I was a child. That ranch now has a housing community on it. Everybody knows that similar lands have been developed throughout Florida.

It is amazing how little discussion there has been regarding the underlying reason for Florida’s many sinkhole claims. The primary reason is that Florida geology has extreme karst topography. 

The sinkhole issue was noted as follows:

The idea of creating a state sinkhole "facility" was floated Thursday at an Office of Insurance Regulation symposium in Orlando on the state’s property insurance crisis.

Insurance Commissioner Kevin McCarty said the event, featuring mostly insurance industry officials, will help his office draft recommendations for state leaders on improving the affordability and availability of property insurance.

McCarty and insurance company executives said premiums aren’t keeping pace with expenses for many insurers because of backup coverage costs and a dramatic increase in claims costs, including expenses for sinkhole claims. Citizens collected $19.6 million in premiums specifically for sinkhole coverage in 2009 but paid out $97 million in sinkhole claims and expenses. Most of the sinkhole claims were for minor cracks in walls and driveways, according to the state-backed insurer.

John Auer, president of American Strategic Insurance in St. Petersburg, said a government program covering sinkholes is “by far the best way to go.”

“I know a lot of other companies feel similarly,” Auer said, adding that sinkholes are hard for insurers to cover because of the disagreement among architects and engineers about what is a sinkhole or not.

Auer also said that sinkhole costs are so high that they “could take some companies down before the rate can catch up with it."

This sounds an awful lot like the debate regarding coverage of mold related losses which took place nearly a decade ago. First party coverage for mold related losses is extremely limited or excluded under most property insurance policies. As Jason McCaul noted in
Plain Meaning or Fuzzy Interpretation? The Future of First-Party Property Coverage for Mold:

[B]etween 2001 and 2005, insurance companies quietly amended homeowner’s policies by adding endorsements that exclude coverage for mold damage. According to David Dybdahl, a noted expert in the field of insurance and risk management, insurance companies “blasted through more policies than anything in history -- faster than terrorism, asbestos or pollution. They quietly excluded [mold damage coverage] from everyone's policies, and they got away with it.

McCaul provided some background into the financial reasons mold losses are now often not covered:

The new millennium ushered in many unanticipated events: high speed Internet access, a Boston Red Sox World Series Championship, and an unprecedented rise in mold litigation. The statistics are staggering: in 1998, only 129 mold-related insurance claims were filed nationally. By 2001, this number had skyrocketed to 9,563. Despite this rapid surge in mold claims, the financial impact on insurers was minimal at first. In 2000, Texas insurers were settling most mold claims for a few thousand dollars. However, as attention to what some were calling “the next asbestos” grew, the potential dangers of mold spread across headlines and into the national consciousness. “Lurking, Choking, Toxic Mold” was the cover story in the August 2001 edition of the New York Times magazine. And for readers of the Washington Post, the attitude toward mold was no less threatening: the attention-grabbing headline “Exorcizing a Mold Monster” surely had homeowners thinking about whether their property or health was at risk.

As concern over mold swept across the nation, the eye of the inevitable legal storm that would pit homeowners against insurers over coverage for mold damage was forming in the most appropriate of places – Dripping Springs, Texas. There, homeowner Melinda Ballard had sued Farmers Insurance Group (“Farmers Insurance”) for failing to adequately reimburse her for the extensive mold damage to her eleven thousand square-foot home. Ballard accused Farmers Insurance of intentionally delaying its investigation of her claim in an effort to avoid payment. While Farmers Insurance stalled, toxic mold multiplied in Ballard’s home to the point where virtually nothing in the house was salvageable and the house itself was no longer habitable. Although Ballard was partially a dispute over coverage, the central issue was whether Farmers Insurance acted in bad faith in its handling of the claim. The jury’s verdict in June 2001 not only found that Ballard had been covered, it also heavily penalized Farmers Insurance for bad faith: Ballard was awarded $6.2 million for her property damage claims, $17 million for her bad faith claim, and $8.9 million in legal fees. While a Texas appellate court later reduced the
$32 million award considerably, the jury’s decision sent property insurers scrambling to look for ways to lawfully deny coverage for future mold claims. Thus, from the ashes of Ballard, the mold exclusion was born. (emphasis added and citations deleted)

Regardless of other reasons, severe and frequently encountered perils will not be covered unless the rates accurately reflect the risks of loss.  Sinkhole losses are expensive to properly repair. The frequency is primarily concentrated in a very small geographic area. I predict that, similar to mold coverage, only those willing to pay significant premiums with high deductibles or those with very large financial interests in property will have sinkhole coverage in the future. Just like mold, the insurance industry seems bent on either leaving markets with mandatory sinkhole coverage in areas where they often occur or simply not covering the risk.

This scenario is often repeated just after destructive hurricane seasons as insurers try to increase premiums to make up for the catastrophe losses. As I noted several years ago in, Do we build or flee in the face of catastrophic frequency and severity?:

Frequency and severity of loss have everything to do with our current insurance situation. The catastrophic frequency and severity of hurricanes from 2004 to 2006 was off the charts. And, the severity of loss (the average amount paid per claim) was extraordinary as well. Combined, these lead to historic losses in a relatively small catastrophe prone area. Like bookies looking for the sure bet, insurance companies are simply looking to place bets where fewer losses occur. As these private insurers flee the coasts, state insurers of last resort are left to fill the void, in some instances with less than satisfactory results. The long term answer is not easy and will not be cheap. People are determined to continue living close to beaches and water. Recognizing and accepting this fact, we must start to deal with the upfront cost of building more structurally sound and "hurricane resistant" structures.

Unlike hurricanes, sinkholes losses, similar to mold losses, occur on a fairly regular basis. Many trades and businesses depend on sinkhole claims because the losses are so prolific. Similar to mold coverage, those in the business will probably be blamed as the entities killing the goose with the golden sinkhole egg. The insurance industry seems to have made up its mind. From what I have read about the methodology regulators are using in their investigation on this issue, you don't need to be a weatherman to know which way the wind is blowing.

The special meeting went forward last Tuesday, with a mere 9% of the shareholders voting. The majority (74%) of that 9% voted in favor of eliminating their option to hire a public insurance adjuster in the event of a loss.

Julie Patel, of the SunSentiel, reported the results in her article, “Sawgrass Policyholders Won’t Hire their Own Claim Reps.”

Davie-based Sawgrass, which has about 12,000 policies, is a mutual company so policyholders own the company. The plan – aimed at saving money on claims costs – was approved.

As explained Chip’s post, the agreement violates Florida regulations which prevent insurers from suggesting, as a consideration for obtaining an insurance policy, that policyholders not obtain the help and assistance of a public insurance adjuster after a loss. Chip also gave valuable insight regarding the reasoning behind Sawgrass’ proposition and the benefits that of using public adjuster:

[M]anagement of insurance companies want to gain additional profits and other competitive advantages; by prohibiting policyholders from valuable assistance in the adjustment of a claim, insurance companies increase the likelihood that a policyholder will accept less than the full value of a claim. While there is no guarantee that public adjusters will find coverages and scopes of damage missed by insurance company adjusters, the statistics obtained by the Florida Office of Insurance Regulation suggest otherwise. My own experience is that insurance companies routinely underestimate damage amounts and fail to pay for or disclose coverages available under the policy.

Patel’s article explained that public adjusters also feel that Sawgrass policyholders were not informed about the value of hiring a public adjuster.

[T]he letter did not provide Sawgrass policyholders with the benefits of hiring a public adjuster: to help level the playing field between consumers who may not understand the nuances of insurance policies and insurers with vast resources to fight claims.

The amended bylaws will be provided to the Florida Department of Insurance and the Insurance Consumer Advocate, who is charged with the duty “to represent consumer interests in regulatory proceedings regarding all insurance activities conducted under jurisdiction of the Department of Financial Services and the Office of Insurance Regulation.” It will be interesting to see their reactions.

Julie Patel, of the Sun Sentinel covers the “insurance beat” and has a good understanding of the issues because of her experience reporting on insurance related issues. Her blog had a recent post, Bill Allowing Insurers to Raise Rates Likely to Get Vetoed by Crist. She noted:

Gov. Charlie Crist said he's leaning toward vetoing a property insurance bill that would, among other things, reduce costs for insurers and make it easier for them to raise rates.
…
"To their great credit, they're very effective advocates," Crist said of insurers. "They play on fear a lot and talk about, 'It's going to be a terrible day.'"

I agree. Indeed, I noted the effective control the insurance lobby has in Tallahassee over a year ago in Insurance Lobbyists are Winning the Consumer Protection Battle, and more recently in The Florida Insurance Lobby Currently Controls the Rhetoric Regarding Public Adjusting in Florida. Since much of what the insurance industry is paying for with these lobbyists are laws that harm their own consumers, even the pro-insurance industry press has questioned whether this is ethical-- as noted in The Ethics of Insurance Industry Lobbying is Raised in the Insurance Industry Press . In effect, the insurers are using premiums from their own customers to pay lobbyists to promote higher rates and fewer benefits for their customers. One aspect of the proposed legislation does exactly this. Now that the bill has hit the governor’s desk, everybody can bet that these savvy insurance lobbyists are trying every trick in the book to suggest that this bad legislation is helpful to consumers. The media propaganda has started in earnest with “Florida Insurers Say Omnibus Property Bill Is Consumer Friendly.” After spending all that money with the legislative process, those lobbyists will have their public relation types doing everything they can to make this bad bill look as good as possible.

Still, in Five Bills Gov. Crist Should Veto, the St. Petersburg Times editorial board noted:

Property insurance (SB 2044) This bill is a mixture of bad and good, the latter being that it would require insurers to have more capital. But it broadens the ability of insurers to get expedited review for rate increases of up to 10 percent to cover reinsurance and inflation costs. The window for these types of increases, which are routinely approved, is plenty wide enough now.

The legislation also unfairly tinkers with mitigation discounts. It penalizes both those homeowners who invested in storm shutters and other improvements and homeowners who did not — lessening the cost of mitigation discounts to insurers and allowing them to transfer some of the remaining costs to other homeowners.

Indeed, I was at the legislative hearing regarding the discounts, where Senator Mike Fasano seemed very upset that Florida, after promising insurance rate discounts and people spent money on mitigation measures in reliance on that promise, would retroactively break that promise.
 

There are more aspects of the long bill which I will write about. I did promise in yesterday's post about commenting about one aspect of it involving religion, and here it is:

Section 5. Paragraph (n) is added to subsection (2) of section 626.221, Florida Statutes, to read:

626.221 Examination requirement; exemptions.—

(2) However, no such examination shall be necessary in any of the following cases:

(n) An applicant for license as a customer representative with respect to property insurance who has earned the designation of Certified Insurance Representative (CIR) from the National Association of Christian Catastrophe Insurance  Adjusters.

While a Christian, I believe in separation of church and state. Nobody I know in the insurance adjusting community has ever opined that membership in this particular organization renders an adjuster more educated, experienced or qualified to do the job. The qualifications for membership in the Christian one, the National Association of Christian Catastrophe Insurance Adjusters, certainly do not meet the level of experience and knowledge required of a CPCU or AIC in adjusting.

I wonder what my Jewish adjuster friends think of it?

While Ruck was going through the legal implications of the bill, I went to Julie Patel of the Sun Sentinel to find her Reader's Digest report on this important bill. The title to her report, Measure to Raise Property Insurance Rates and Lower Insurers' Costs Clears House, suggests that the bill is very favorable to the insurance companies and that Florida insurance customers will pay more for fewer benefits.

Public adjusters will also be impacted:

Rep. Bill Proctor, R-St. Augustine, said the bill boils down to "one thing:" curbing the growth of the public adjusting industry. The bill would also create new restrictions for public insurance adjusters – who are typically hired by policyholders during claims disputes with their insurers – such as caps on what they can charge and how they can advertise.

However, the language is far different than that originally of concern to public insurance adjusters when I posted Policyholders and Public Adjusting Under Attack in the Florida House of Representatives. While a number of public adjusters do not like the content of this bill, the language which I referred to as a "nuclear bomb" was removed.

As Patel noted, this legislative battle is not over:

The bill, SB 2044, initially cleared the Florida Senate and was approved Wednesday by the House with a minor change. If the Senate makes additional changes to the bill, it would have to go back to the House before it's sent to Gov. Charlie Crist."

Stay tuned. We will have more to report on this tomorrow.

Investigative journalist Paige St. John reported in How Insurers Made Millions on the Side, that:

Investors and executives in 2008 moved $1.9 billion in policyholder money out of heavily regulated insurers, where profits are capped and dividends are restricted, to separate companies that are owned by the same people, housed at the same address and sometimes use the same employees.

...

Meanwhile, insurance executives complained about losses and state-mandated discounts, and pressured state regulators for permission to charge homeowners more -- even to end rate regulation altogether.

I wonder what the response is going to be from those who supported unregulated insurance rate laws. It is human nature to have a hard time admitting mistakes. If anything, this story demonstrates that laws need to be changed to allow much greater oversight by regulators because some insurance executives cannot be trusted to be honest stewards of monies set aside for the payment of claims.

Some insurance lobbyists defend these activities and even provide a justification:

The state industry's chief trade group, the Florida Insurance Council, defends internal deals as a way to provide quick returns to start-up insurance companies. Regulators bar insurance companies themselves from paying dividends to investors until they have been in business at least three years.

"Investors would simply not provide funding without generating some return each year as they are putting up money with a risk of total ruin," said Sam Miller, vice president of the council.

...

The Florida Insurance Council defends MGA profits. After surveying some of its members, the trade association said MGA profit margins are only 3 percent to 5 percent of total premiums -- an amount vice president Sam Miller said "is not considered excessive and does not involve a great amount of premium."

I agree with Sam Miller that such a system promotes investment. It sounds like a method of making "gold rush" windfall profits in an industry that usually makes a return of less than ten percent. Insurers are claiming they are losing money in non-hurricane years---but MGA's (Managing General Agents, those who manage insurers’ daily operations) are expensing themselves for monies paid to their executives and owners. The Sarasota Herald-Tribune noted this discrepancy in Miller's logic:

calculating MGA profit as a percentage of MGA revenue -- the traditional way of figuring business profit margins -- shows MGA profit margins ranging from 25 percent to 50 percent.

Anybody reading through this investigative report is going to come to a conclusion that some in the Florida insurance business are playing a "shell game" with money. They are making plenty of cash and at the same time crying that no money is being made. We noted this in last week’s post, Are Florida Insurance Companies Really Losing Money? Are Investors Using Management Companies To Take Profits and Leave Little Surplus for Policyholder Claims? Julie Patel, of the Sun-Sentinel, followed up on that in her post, Florida Insurer Agrees to Regulators' Demand to Lower Fees Paid to Affiliate, and documented that more insurers are under investigation for doing the same thing:

Separately, regulators will require Homeowners Choice Property & Casualty Insurance Co. to pay a $10,000 fine for failing to provide information about an agreement for back up coverage it had with its affiliate. They want the affiliate to return more than $9 million to the insurer.

Regulators are also reviewing other insurers' MGA fees. Officials from Demotech, an insurance rating agency, said they have been telling insurers to lower their MGA fees to leave more money to pay for claims and other costs.

Many previously giving the insurance industry the benefit of the doubt may now find that legislation allowing unregulated rates cannot be passed, given the uncertainty as to whether these insurers can act fairly in an unregulated environment. Further, Legislators should reconsider repealing laws that require prompt payment of replacement cost benefits when one of the reasons for repealing the laws is the protection of insurance industry profits. Instead, recent evidence suggests that laws should be promulgated to stop these financial practices and provide much greater transparency through regulation which protects Floridians and policyholders.

And, I am certain that not all insurers have acted so deceptively. There are fiscally conservative insurance executives that are proper stewards of policyholder surplus, banking money away for that day when the hurricanes come back and the money is needed. Laws should be enacted to support these good stewards rather than laws that encourage short term "gold rush" schemes.

The Florida Insurance Council provided a press release on it website that continued the insurance industry mantra:

The Florida Insurance Council shares concerns expressed by three Cabinet members today about unending claims from Hurricane Wilma and the pending 30 percent increase in a statewide surcharge on all Floridians. FIC today formally endorsed legislation (HB 1181, SB 2264) filed by Rep. Janet Long, D-St. Petersburg, and Sen. Mike Bennett, R-Bradenton, requiring hurricane claims to be filed within three years of landfall instead of five years as in current law.

"As Chief Financial Officer Alex Sink noted, three years is more than enough time for a homeowner to know if they have had damage from a hurricane," said Guy Marvin, President of the Florida Insurance Council. "We will work with Rep. Long and Sen, Bennett."

"We share concerns of SBA members that many of the more recent Wilma claims are illegitimate and involve inappropriate activities by public adjusters," Marvin said. "We share concerns that with the statewide assessment going up, millions of Floridians are paying more on their insurance because of improper claims by some homeowners and some public adjusters in south Florida."

My post, Policyholders and Public Adjusting Under Attack in the Florida House of Representatives, had a number of comments. I replied that I suggest many public adjusters take to heart and then make a commitment on behalf of themselves and most importantly, the policyholders they help:

Everybody reading this should remember a few important aspects about our democratic process, the need to participate, and the need to reform when criticism is warranted:

1. Most elected officials truly want to make the "world, country, state" a better place to live and work. They are not corrupt, but are truly well meaning people.

2. Politicians viewpoints on issues are often ignorant because nobody knows everything. If full-time insurance lobbyists show propaganda to these elected officials that only shows that policyholders are getting something they do not deserve and that public adjusters are fleecing insurance companies and policyholders, you do not need to be a genius to appreciate their impressions and viewpoints.

3. Many insurance companies require and train their employees and agents to speak with elected representatives about issues in such a way to slant impressions to elected representatives about the need for laws that protect insurance company interests over consumer interests. They often have these scripted out as talking points so that the propaganda actually makes it sound like the proposed law is in favor of the policyholder---usually through the promise of lower rates which then never materialize or do so at the cost of not having coverage.

4. Unless interested people take an active role to visit with, write, and support representatives that appreciate the truth and the need for policyholder protection, the full time lobyists and employees of the insurance industry will prevail with their message.

5. You have to participate if you want justice to work in a democracy because large corporate interests have already figured this out and spend massive money and time coordinating special interests by industry.

6. Public adjusters have made numerous changes in the law and have made more suggestions for improving their trade and preventing abuses by some. This reform within the public adjuster trade through leaders in FAPIA and NAPIA needs to be explained and continue.

7. Show up and support representatives that appreciate the consumer side of insurance. You need to encourage and provide financial support to consumer organizations and FAPIA's legislative efforts, including showing up next Tuesday for Frank Artiles in Coral Gables.

8. If you want justice, you cannot just sit back and expect others to do it all for you. You have to work at it with your time and money. Make a commitment and stick to it. If it is important enough, make a big commitment and encourage others. One person can make a difference.

9. Do not get discouraged. I have visited with and provided information to various representatives for a number of years. Sometimes, I have felt like it is just me, a few lobbyists I have personally hired because I have to work on my cases, and just a handful of others in Tallahassee trying to push for laws that favor consumers and explaining the important role of public adjusters. I feel as if I have wasted a significant amount of money and time while some other colleagues simply do nothing and provide no support. And, I still keep at it.

In contrast, the insurance lobbying effort is massive, professional, and full time. They can outspend and provide greater numbers of individuals in their efforts.

And, policyholders cannot give up because the alternative is unjust laws. Those well meaning political representatives understand the enormous wealth and resources of corporations. Contrary to popular rhetoric and demeaning criticism, most elected representatives are not "paid off" or "corrupt." They will listen if you can present a credible and persuasive impression that is based on genuine and authentic truth of an issue.

Increasing property insurance capacity in Florida is a significant public objective. Our governmental leaders should encourage this. Given the lack of a true open or free market as a result of limited capacity, many insurers attempt to charge rates which are unfair because there are no, or limited, alternatives to buyers. I disagree that complete rate deregulation of Florida's non-free insurance market, which some legislators and State Farm lobbyists were calling for last year, will cure the problem.

Dan Luby reported in Florida Insurance News that the Florida Office of Insurance Regulation has approved another form policy without the appraisal process.

On 11/16/2009 the Florida Office of Insurance Regulation (OIR) approved the elimination of the Appraisal Clause from the homeowners multi-peril policy for Liberty Mutual Fire Insurance Company (NAIC Company Code 23035) and The First Liberty Insurance Corporation (NAIC Company Code 33588). This change is effective 12/14/2009 for new business and 02/04/2010 for renewals.

This is a definite trend. Some claims executives have confided with me that they feel the process is unfair to them for several reasons.

First, they complain that many public adjusters use appraisal as a means to obtain a split between an outrageously high estimate and a "fair" estimate. They complain the appraisal panel, more often than not, simply splits the differences of the estimates.

Second, they feel that many coverage issues get intertwined with appraisal. Thus, they complain that uncovered causes of loss often wrongly get included into appraisal awards.

Third, the process becomes ripe with gamesmanship involving millions of dollars with larger claims. They complain that the informal nature of the appraisal process does not protect then from improper conduct and activities.

I am not going to comment on these complaints because I am not going to change any insurance company executive's perspective on this issue. From my perspective, policyholder's with professional representation at appraisals are doing much better than a decade ago, when they often went without professionals experienced in the appraisal process. My impression is that these higher awards are why some insurers no longer want to allow appraisal to continue.

The important aspect for the policyholder is that increasingly, there will no longer be a binding alternative dispute resolution process. Public adjusters may have to start preparing their work for litigation rather than appraisal. The exactness required in litigation is much higher than most appraisals because there will usually be greater critical analysis of the damage and coverage issues.

The bottom line is that I expect this trend to continue. Appraisals could become rare as more companies change their forms, removing the clause. Some policyholders may simply "give up" on a claim because litigation is a much more risky and demanding process than an informal appraisal of damages.

Voters are not stupid, and McCarty is calling out those that are supporting this anti-consumer legislation with a published comment on the matter. I found this especially significant to the debate:

"When I pointedly ask industry representatives how much more business they would write if they could get any rate they wanted, the serious answers I get back range from marginally more to none. Again, because of the moderate to severe hurricane risk across the entire state of Florida, the risk of ruin from catastrophic loss outweighs any potential premium income in their management models.

That said, we continue to look into this issue. Proponents of complete rate deregulation assert that it would provide a better competitive outcome. Following basic economic theory, therefore, markets with rate deregulation should exhibit lower prices and a lower degree of market concentration, all else being equal. These are easily verifiable empirical results, and there is plenty of data available with which to test this hypothesis. I would encourage the competitive market advocates to undertake such an analysis. Our own internal looks at the potential effects of market deregulation have not found support for the proposition.

Prior to Florida's legislative changes of 2007, the rate review process for property insurance was identical to the process used for all other property/casualty lines of business -- about which there is no industry outcry. The biggest difference, yet again, is the pricing of the catastrophic component of hurricane risk embodied in property insurance. This component of pricing is what makes underwriting hurricane exposed property such a challenge for insurers, regulators and the public."

Julie Patel of the Sun Sentinel followed up with this in a story, Home insurance rates to rise, top regulator says. She noted that when the Sun Sentinel inquired from several insurers whether they would sell more insurance if their rates were allowed to be raised, none of them indicated in the affirmative.

State Farm is not only behind trying to get Florida legislators to pass laws allowing for unregulated rate increases, it is battling the State of Florida in the administrative courts as well. The St. Petersburg Times reported Thursday that McCarty has reached an impasse with State Farm over its withdrawal from Florida, and he has referred the matter to the administrative courts for a hearing on the matter.

Eventually, the large corporate giant known as State Farm may prevail through hardball litigation or significant lobbying and propaganda. What human could get away with such treatment or have such resources to even try to change the rules of the game?

Some may start to question whether such business entities should be allowed to legally wield such power. The people reviewing State Farm's arguments have indicated that its justification for the rate increase was not factually sound. The Florida Insurance Commissioner has questioned State Farm’s fitness to operate in Florida. It appears that State Farm may have found Florida's soft underbelly in some of Florida's legislators.

At the same time, State Farm’s lawyers are fighting with the Florida Office of Insurance Regulation over the terms of its withdrawal from Florida's property insurance market. Is State Farm using the threat of leaving to compel legislators to pass the very anti-consumer legislation? Will State Farm withdraw its plan to leave if the bill is passed?

To remind everyone, State Farm lost in an administrative hearing against the Florida Office of Insurance Regulation in which it asked approval to increase its rates . The judge made a number of findings that State Farm was not losing money in Florida and it noted State Farm's absurd argument that it claimed to be losing money in Florida through "expenses" that the company paid to itself.

In response to the order, State Farm decided to stop providing property insurance in Florida altogether. My thoughts on this are found in a post, State Farm's Power Play And Propaganda Ploy. In hockey terms, State Farm's power play lead to an unexpected short handed goal by its opponent, Florida's Insurance Commissioner, Kevin McCarty, who placed conditions on the withdrawal and did it in a very pointed manner:

"State Farm’s cited reasons in the Withdrawal Plan are both disingenuous and misleading to the Office and policyholders they seek to abandon. State Farm created its current “crisis” by failing to pursue the opportunities that were available to reduce its expenses and mitigate its decrease in premium volume. Instead, it chose to attempt to raise rates in order to reduce savings to its policyholders its mitigation discounts provided [sic.] and to seek a profit that was excessive and unreasonable in the current economic conditions while certifying that its rate filing reflected all premium savings that resulted from legislative enactments. State Farm’s actions raise serious questions regarding the fitness and trustworthiness of its officers and directors to engage in the business of insurance."

State Farm has now challenged McCarty’s findings and conditions in a Petition for an Administrative Hearing on the matter. Their Petition claims that Florida acted "arbitrarily and capriciously.” I guess State Farm can now relate to its customers in Mississippi that it mistreated during the Katrina litigation.

In the meantime, lawyer Mark Delegal, a State Farm lobbyist, is heading a group of insurance industry lobbyists who are trying to overturn the longstanding practice of Florida regulating insurance rates. There is a good reason why insurance rates are regulated by the states--federal anti-trust laws do not apply to insurance company rate making. (I wonder if Florida legislators supporting this measure have a clue about that and its implications for the types of rates consumers may have to pay.) An article by Julie Patel in the Sun-Sentinal, Florida Home Insurance Legislation Mainly Favors the Insurers, noted that insurance industry lobbyists are pressing the Florida legislators with numerous pro-insurer bills which will result in increased rates and lower consumer protections. Delegal, State Farm, and other insurance industry insiders seem to be winning this battle---they have an army of attorneys and use their own customers' premiums to fund their fights for laws that would actually harm their customers.

Thank God the Florida people have elected a person of courage to stand up to large corporate interests and these lobbyists. The Sarasota Herald reported that Florida Governor Charlie Crist will stop these anti-consumer measures in its article, Crist Warming up the Veto Penfor Insurance Bill. Crist, a former Attorney General, is well aware that the insurance industry is exempt from criminal and civil penalties of federal anti-trust laws, specifically in return for those companies agreeing to be subject to state regulation. He was quoted:

“My hope is that some provisions that in my view are detrimental will fall away before they come to me,” he said. “I’m a free market guy first and foremost so long as the free market can protect the consumer.

“If it can’t because an industry is so powerful and so unwieldy, then there’s an appropriate role for government to assist the consumer. This one concerns me because it’s ‘Katie bar the door’ for their rates and that’s not good.”

Crist compared insurance rates to the prices at gas stations; as soon as one station raises its prices, the other inevitably follows.

“In that industry,” Crist said of property insurance, “there seems to be a swarm mentality.”

It will be interesting to see how State Farm’s lawyers try to get it out of this mess. The lawyers are very clever, bright and persuasive types. In my battles, I never underestimate them. But it sure looks like they have some tough going to get State Farm out of its fight with the State of Florida.