Insurance reform attracting new insurers to Florida
 

TALLAHASSEE, Fla. – April 23, 2007 – Florida’s scary property insurance market is becoming more welcoming to new insurers thanks to recent changes in laws that are helping them financially.

Four new homeowners insurance carriers have entered the Florida market since the state passed legislation in January to lower premiums and entice new carriers to write policies.

Another three companies have applications pending with regulators to begin doing business in the state, according to the Florida Office of Insurance Regulation.

New carriers entering the market is a sign companies are finding it more attractive to do business in the Sunshine State after the Legislature expanded the Florida Hurricane Catastrophe Fund in January to give insurers cheaper reinsurance, which is insurance for insurance companies.

“We of course were looking at the special session very closely,” said Frank McCahill III, president and chief executive officer of Port St. Lucie-based Homeowners Choice Property and Casualty Insurance Company, Inc. The company is awaiting the final go-ahead to do business after receiving its operating permit March 30. While the benefit the company received from having greater access to the CAT fund helped, it wasn’t the sole reason Homeowners Choice decided to enter the market. The company had plans to offer policies long before the special session.

As a new company, Homeowners Choice was going to be able to offer lower rates because it did not have to recoup losses from the 2004 and 2005 storm years like other companies, McCahill said.

But a Catch-22 for insurers – a requirement that they pass on reinsurance savings to customers through lower rates – put a crimp in that rationale, McCahill said.

“Actually that kind of took the wind out of our sails a little bit,” McCahill said. “We felt that the rates had reached a level where it made sense to give this a go. In fact, we felt that the rates were higher than necessary, and we were planning on coming out with a new product with reduced rates anyway. Now with the special session everyone is having to reduce our rates so our competitive advantage to some degree has been eliminated.”

Homeowners Choice has about $12 million in capital and immediately plans to take 20,000 policies from Citizens Property Insurance Corp., Florida’s insurer of last resort, McCahill said. The company plans to write a total of 40,000 policies in its first year.

Bruce Howson, president of Ponte Vedra Beach-based American Keystone Insurance Co., said the CAT fund change may not immediately have much impact on the company because it will initially have a small number of policies and therefore will not qualify for as much access to the fund as larger companies.

“It depends on what your book of business looks like, how much you get out of the CAT fund,” Howson said, adding that the company plans to initially write about 3,000 policies. “We won’t have as big a book of business. For us, it’s just readjusting our reinsurance budget to whatever we get out of the CAT fund.”

John Laurie, an agent with Bradenton-based BB&T-Wyman, Green & Blalock who serves on the board of the Florida Association of Insurance Agents, said the fact new companies are entering Florida is a positive sign that aspects of the legislation have worked.

“Clearly, the expansion of the CAT fund has made an improvement in the business model to allow carriers to at least obtain the reinsurance they couldn’t get before,” Laurie said. “I honestly haven’t seen a huge influx of new companies.”

However, Laurie said existing companies, particularly domestic carriers, have benefited from the backup reinsurance that allows them to expand their policy-writing in the state.

Recent legislation also allowed private insurers to receive a match from the state to help build cash reserves for future claims, Laurie said.

Legislators set aside $250 million to provide matches of up to $25 million per company to build capital reserves.

“We’re just starting now to see the benefits of that incentive go to work,” Laurie said. “You could apply for up to $25 million. If you put up $25 million, the state would match you another $25 million.”

But the cloud to the silver lining is the fact that larger companies with deeper pockets – some with capital in the hundreds of millions of dollars – are still pulling out of Florida, Laurie said.

“We still see the big guys retracting,” Laurie said. “That’s a disappointment from the legislation. State Farm, Nationwide, Allstate, Auto Owners, those companies are still retracting.”

Ross Buchmueller, president and chief executive officer of Plantation-based PURE High Net Worth Insurance, said the law changes helped carve out a special niche for his company, which only insures homes worth $1 million or more and began writing policies Jan. 29.

One of those changes involved Citizens Property Insurance Corp., the state’s insurer of last resort, no longer being able to offer coverage on $1 million homes in order to limit risk exposure, Buchmueller said.

“The changes from Senate Bill 1980 created an attractive environment … making million-dollar homes ineligible for Citizens and creating a capital buildup incentive,” said Buchmueller, whose company has $50 million in capital. “All of that was very attractive.

“Because reinsurance is easier to get on higher-priced, better-built homes, the expansion of the CAT fund didn’t really play a part in the company deciding to start writing policies in Florida,” Buchmueller said. “I’m not suggesting it’s a bad thing, but it’s certainly not the thing that got us interested in the market.”

PURE High Net Worth has approved 200 of 1,500 qualifying applications, Buchmueller said, adding that the company will do a substantial part of its business locally.

“We love your area,” Buchmueller said. “The number of inquiries we get from Lakewood Ranch is terrific. There is a lot of construction there that is fitting our appetite.”
 

Copyright © 2007 The Bradenton Herald, Fla., Brian Neill. Distributed by McClatchy-Tribune Business News.

 

Insurance panel reviews hurricane study
 

TALLAHASSEE, Fla. – April 23, 2007 – New research suggesting fewer hurricanes in the future, not more, may be ignored by a state commission reviewing computer models that help determine homeowners insurance rates.

It’s an important issue because one model under review by the commission assumes more hurricanes and far greater losses, thus helping justify higher insurance premiums.

Florida’s decision could affect homeowners in other states, too. On Friday, Louisiana’s insurance commissioner froze use of one of the same models, from Risk Management Solutions, pending Florida’s decision.

Bob Hunter, an insurance expert at the Consumer Federation of America who recently served as an adviser for Florida’s Insurance Commissioner, said state regulators shouldn’t let RMS choose just the science that justifies higher rates.

Randy Dumm, chairman of the Florida Commission on Hurricane Loss Projection Methodology, said he doubts research published this week by the National Oceanic and Atmospheric Administration can make the current review cycle, which began last month.

“Something like this would not be reflected in this series. It’s going to take awhile for any valid scientific findings to be incorporated into any future models,” said Dumm, a professor of real estate and business law at Florida State University. He also worked as an insurance agent and broker from 1985 to 1994.

The new study found that rising ocean temperatures will also generate more wind shear, or turbulence, which tends to break apart and weaken hurricanes.

Some previous studies suggested that warming oceans will generate more hurricanes. The Atlantic is also thought to currently be in a natural cycle of high activity, which may extend for 10 to 15 years.

Goal is price stability

Hunter said ignoring the new research would be wrong, since the whole field of catastrophe modeling was designed to bring long-term price stability to the insurance market.

“You have to factor in everything. The regulators are way behind the curve,” Hunter said.

Insurance Consumer Advocate Bob Milligan said he thinks credible new science with the potential to lower rates should “absolutely” be considered by the state review commission.

Dumm said that “truly noteworthy” science or “some momentous shift” might be considered by the commission, but declined to comment on how those terms would be defined.

According to NOAA, the new research appears to meet some of Dumm’s criteria.

“While other studies have linked hurricane intensity to global warming, this is the first published study to indicate that changes to vertical wind shear seen in future climate projections would likely diminish the frequency and intensity of hurricanes,” said a NOAA statement.

The authors of the study were Gabriel Vecchi, a NOAA scientist based in Princeton, N.J., and Brian Soden of the University of Miami. They used 18 recent computer climate models to estimate how wind shear might weaken storms that have formed in the Atlantic and Pacific oceans.

“It’s the first time it had been looked at so comprehensively,” Vecchi said, and 14 of the 18 models showed the turbulence would weaken storms, perhaps by as much as 30 percent.

In other words, the two changes driven by global warming might cancel each other, meaning the average number of hurricanes would not increase. Wind shear would not slow a projected rise in sea levels.

Vecchi and Soden said their study accepts that global warming is real and will continue this century.

Roger Pielke Jr., an expert on climate change models at the University of Colorado, said the public and policy-makers need to realize science can’t deliver exact answers about climate change.

“I think the reality is for the foreseeable future, the future’s going to be really cloudy. Most scientific studies involve a tremendous amount of uncertainty,” Pielke said.

“This is how science advances. I’d urge caution in putting too much weight on the latest study,” since there will probably be many more reports showing different possibilities.

RMS model called premature

Pielke has also urged caution over the RMS model, calling it “very much premature, scientifically.” Pielke wrote in his blog that the new RMS approach “is a recipe for price instability, exactly the opposite from what the consumer groups, and insurance commissioners, want.”

The RMS model assumes higher hurricane activity from 2006 to 2010 and has been criticized by scientists and ethics experts for relying on questionable assumptions and for not being published in a peer-reviewed scientific journal before its launch.

RMS chief research officer Robert Muir-Wood agreed that the findings of the new report appear to be significant.

He said the results “identify an important factor associated with global warming that could eventually act to reduce hurricane formation and intensification during the 21st century.”

Muir-Wood predicted much scientific debate over which factors might have the greatest impact on hurricane frequency and intensity over the next 50 to 100 years.

He said the RMS model factors in researchers’ consensus about the current natural cycle of high activity in the Atlantic, so it is valid.

Muir-Wood said the company will perform annual updates to activity rates, but did not directly answer the question of whether it will incorporate the findings by Vecchi and Soden.
 

Copyright © 2007 Tampa Tribune, Fla., Kevin Begos. Distributed by McClatchy-Tribune Business News.