12th Annual Florida Hurricane Catastrophe Fund Participating Insurers Workshop Recap
Date Published: 05-25-2012
The 12th Annual Florida Hurricane Catastrophe Fund ("FHCF") Participating Insurers Workshop ("Workshop") was held in Orlando, Florida on May 15-16, 2012. Following is a summary of the presentations that were given during the event:
20th Anniversary of Hurricane Andrew: The Role and Evolution of the Florida Hurricane Catastrophe Fund
FHCF Director of Legal Analysis and Risk Evaluation Leonard Schulte provided Workshop attendees with a historical perspective of the FHCF and how it has evolved over the last 20 years.
The FHCF was established in 1993 by the passage of HB 31-C in order to create "a state program to provide reimbursement to insurers for a portion of their catastrophic hurricane losses which will create additional insurance capacity sufficient to ameliorate the current dangers to the state's economy and to the public health, safety and welfare."
Now a member of the law and governmental consulting firm, Colodny, Fass, Talenfeld, Karlinsky & Abate, The Honorable Tom Gallagher, who served as Florida Insurance Commissioner during Hurricane Andrew, was interviewed by FHCF Chief Operating Officer Jack Nicholson on the need for regulatory leadership following a catastrophic hurricane. Mr. Gallagher reviewed the lessons learned by the Florida insurance industry from Hurricane Andrew during that time.
Florida Insurance Legislation: Past, Present and Future
Colodny, Fass, Talenfeld, Karlinsky & Abate Shareholder Fred Karlinsky provided a breakdown of key legislative changes that have impacted the Florida insurance market since 1993. The most notable of these occurred during the 2006 and 2007 Legislative Sessions as political reactions to the 2004 and 2005 hurricane seasons. Some of these changes included the creation of the Insurance Capital Incentive Build-Up Program, the freezing of Citizens Property Insurance Corporation's ("Citizens") rates to the 2005 levels, the creation of the Temporary Increase in Coverage Limit ("TICL") options and the establishment of the Temporary Emergency Coverage Options within the FHCF.
Mr. Karlinsky also discussed SB 1372, which was presented during the 2012 Legislative Session. SB 1372 would have revised the FHCF by reducing its exposure through altering its coverage limits, reimbursement percentages, retention, cash build-up factor and optional coverages. However, this bill was not passed.
Mr. Karlinsky's presentation also addressed pertinent changes within the State of Florida since 1992, focusing on the state's political landscape, the size of Citizens, the shifts in state's demographics and the distinctions among the type of influences of key government leaders over the decades.
Changes in the Reinsurance Market since Hurricane Andrew
Advocate Reinsurance Partners' Ted Blanch reviewed the history of the reinsurance market, first addressing the role of catastrophe modeling prior to Hurricane Andrew. He explained that modeling was not an accepted practice and, while it was around, it was never used and certainly never relied upon. There was no reinsurance market in Bermuda during the time of Hurricane Andrew; however, the market was "inundated" with smaller reinsurance companies.
Aon Benfield Analytics Chief Operating Officer Kevin Campion discussed the financial sources of the FHCF over time and the technological changes of catastrophe modeling since Hurricane Andrew. He explained how mapping software developed to allow insurers to obtain a more visual representation of risks. Many companies deployed some type of portfolio optimization strategy to maximize the amount of insurer premium for the probable maximum loss assumed. Mr. Campion concluded by illustrating how reinsurance coverage and the products have changed.
Guy Carpenter Managing Director and Property Specialty Leader Lara Mowery illustrated how start-up capital has altered since 1993. Prior to Hurricane Andrew, there were over 200 reinsurance companies with $100 million in surplus. However, after Andrew, these companies consolidated, leaving fewer of them, but with larger surplus.
How Has Insurance Regulation and the Florida Insurance Market Changed Since Hurricane Andrew?
Richard Koon, Deputy Insurance Commissioner Property and Casualty for the Florida Office of Insurance Regulation, discussed the evolution of the rate filing process over the past few years. He presented a breakdown comparison of the top five homeowners insurers' direct written premium of 1992 versus 2011 to illustrate how Citizens has become a major player in the market. He also addressed how form filings have evolved over the years due in part to legislation, budget constraints and the complexity of the forms. Lastly, Mr. Koon examined how HB 99, which went into effect on October 1, 2011, impacted the filing process.
The Florida Insurance Consumer Advocate: A Look at Both Sides of the Claims Process Following Catastrophic Losses
Florida Insurance Consumer Advocate Robin Westcott, whose purview falls within the Florida Department of Financial Services, presented a brief historical perspective of the claims paying process and how unfair claims practices lead to reforms, which have not always in the best interest of the consumer or the companies, she explained. Ms. Westcott explained how HB 408 affected the claims payment process, which included requiring coverage of repairs or replacement of undamaged adjoining areas to match quality, color or size of repaired area and requiring payment of undisputed claims within 90 days.
Ms. Westcott concluded by emphasizing how vital a role FHCF plays in the process and her opinion that any future legislation should foster prompt and fair payments of claims.
Mr. Schulte provided Workshop attendees with an overview of FHCF's current financial status. The FHCF has a projected 2012 cash balance of $8.56 billion, with a projected maximum liability of $17.317 billion.
2012 FHCF Premium Formulas: Rates, Retention Multiples and Payout Multiples
Paragon Strategic Solutions Managing Director and Actuary Andy Rapoport explained the FHCF Premium Formula. The following are changes for 2012:
- 20 Percent Cash Build-Up Factor included in rates
- Quintuple TICL premium
- TICL Limit reduced to $4 billion
- Investment rate assumption reduced from 1.5 percent to zero percent
- Pre-event notes expire on October 15, 2012
2012 Reimbursement Contract and Data Call Changes
Paragon Managing Director Martin Helgestad and Director Kathy Mackenthun discussed the current FHCF reimbursement contract and how the TICL premium increased by a factor of five (factor of four for the 2011 FHCF Contract Year). They also addressed the FHCF Data Call and the corresponding changes made, including elimination of the Florida Building Code Indicator Code and Building Code Effectiveness Grading Code fields.
The program also included several breakout sessions led by various FHCF staff members.
Copies of the presentations are available through the following hyperlink: http://www.sbafla.com/fhcf/Home/Announcements/2012ParticipatingInsurerWorkshop/tabid/663/Default.aspx
Should you have any questions or comments, please contact Colodny, Fass, Talenfeld, Karlinsky & Abate.
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