Insurance Claims And Issues

Florida O.I.R. Lifted Suspension of New Allstate Policies...

... The Same Day Florida's First District Court of Appeal Denied Rehearing of its Opinion Upholding O.I.R.'s Order Suspending New Allstate Policies.

     Press reports published on Saturday, May 17, 2008 made it appear that the Florida Office of Insurance Regulation (O.I.R.) lifted its suspension on new Allstate Insurance Policies on Florida on the day before, or Friday, May 16, 2008.  As you will recall, the O.I.R. issued its Suspension Order in the first place because Allstate failed to comply with O.I.R. subpoenas for various groups of documents including unauthorized Catastrophe Computer Models purchased by Allstate in connection with its Premium Rate Increase requests.

     According to the O.I.R., it announced a stay of its Suspension Order on Wednesday, May 14, 2008, immediately after the Florida appellate court denied rehearing of its Opinion upholding the O.I.R. Order.  The reason given by the O.I.R. was its receipt of a sworn affidavit from Allstate "certifying that it has complied with Florida law by freely providing all documents requested" by the O.I.R.  See Florida Office of Insurance Regulation Press Release, "Florida Insurance Commissioner McCarty Stays Allstate Suspension, Continuing Compliance Required," Wed., May 14, 2008.

     Dennis Wall, Chair of the Insurance Law Committee, will speak at the Orange County Bar Association Center in Orlando, Florida about Preparing for Hurricane Insurance, on Wednesday, May 21, 2008 from Noon to 1:00 P.M.  The Orange County Bar Association Center is located at 880 North Orange Avenue in Orlando, Florida.

    You are cordially invited to attend this free public event.  Hope to see you there. 

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Florida Deductibles and Hurricanes.

     Many people hold Homeowner's Insurance Policies and other Property Insurance Policies that have one deductible.  That one deductible is large, in general terms, because it is written to address Hurricane Claims and all other kinds of claims on the policy.  See the suggestion to split deductibles so as to have one deductible for Hurricane Claims, and one deductible for all other kinds of claims on the policy, in this    Letter to the Editor by Mr. David Morris, published Saturday, May 10, 2008 by South Florida Sun-Sentinel.com.

    Where there is a separate Hurricane Deductible, Florida has a statute requiring not less than 18 pitch typeface or point, and also requiring certain wording.  There are additional requirements imposed by a different section if the Policy in question is residential.  However, to date 5 Federal Cases have involved the Florida Hurricane Deductible Statute and the result at this time is that the statute does not provide any penalties, so there are no penalties for its violation.  In one Federal case, an insurance company was found to violate the statute both by using unmandated language and by not using 18 point type to describe its Hurricane Deductible -- and the Policy was still in full force because the Statute still does not provide a penalty. 

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You are invited to "Prepare For Hurricane Insurance," a free presentation of the Insurance Law Committee at the Orange County Bar Association Center, 880 North Orange Avenue, in Orlando, Florida on Wednesday, May 21, 2008.  Dennis Wall, the Chair of the Insurance Law Committee, will be speaking from Noon to 1:00 P.M. on this and other Hurricane Insurance topics.  You will be welcome to attend this free presentation.

"Review Insurance Policies Now" Says Orlando Newspaper.

   Good advice with related links in this newspaper article published in the Orlando Sentinel, February 22, 2008, by Greg Groeller, "Review Insurance Policies Now".  Every Policyholder and their Agents and Brokers holding every kind of Insurance Policy can benefit from following the good advice published by this linked newspaper article.

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Health Insurance, Service, Premiums ... and Florida?

   The New York Attorney General has reportedly started investigations into allegations that Health Insurance Companies are steering Policyholders toward only medicalcare providers who are "in network" because the Health Insurance Companies allegedly pay even less than they might owe under the Policy toward the costs of "out of network" providers.  This development was posted here on Friday, Feb. 15, 2008.  On the geographical expansion of this issue, see this Sunday Editorial by a Florida newspaper:

Florida Attorney General Bill McCollum's office said it would look into the New York case to see if it has jurisdiction to act here in the matter.  Cuomo is earning a reputation as an aggressive defender of consumer rights.  McCollum should follow his lead.

St. Petersburg Times Editorial, "Insurer Pays a Little so Patient Pays a Lot" (St. Petersburg Times Online, Sunday, Feb. 17, 2008).

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Results Are In, Testimony to Continue.

    After 2 days of testimony under oath by Insurance Company representatives, the Florida Senate has learned that the Insurance Companies view their rate hikes as justified.  Julie Patel, "Insurance Companies in Florida Used Loophole in Law to Bypass Required Rate Savings/Companies Used Loophole to Justify Increases" (South Florida Sun-Sentinel.com, Ash Wednesday, February 6, 2008).  More hearings are scheduled on the Premium prices charged by some Insurance Companies for Homeowner's and other Property Insurance, and on what Catastrophe Models they base their claim for increases which have all been denied in Florida.

     It is not known for a fact, but after the revelation yesterday that Insurance Companies view their own rate hikes as justified, perhaps the next hearing will feature testimony, under oath or otherwise, that the sun rises in the east and sets in the west.

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Insurance Questions Before Catastrophes.

    If possible, the time to address Insurance Questions for Catastrophes is before a Catastrophe happens.  Many kinds of different Coverages, with links provided to useful resources, are addressed in this very good single-source-resource newspaper article:  by Renae Merle, "Covered For Catastrophe?" (washingtonpost.com, Sat., Jan. 12, 2008).

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QBE Insurance Group "Protects" Itself With "Derivatives Hedges".

    The good news to add to the headline of this post is that QBE reports that its major financial portfolio does not include "direct investments" in subprime mortgage schemes or CDO's in the United States.

    The bad news is -- besides as the above headline indicates, that QBE actually states that it is "'substantially protected through derivatives hedges'" --  that QBE in addition admits that it has "indirect investments" in those downgraded securities in the United States because it has investments in banks.  QBE refuses to elaborate, it is reported by Brett Miller, "QBE Says Its A$1.7 Billion of Equities Are Hedged (Update 2)" (Bloomberg.com, Wed., January 23, 2008).

    QBE Insurance Group Ltd. is Australia's largest Property and Casualty Insurance Company.

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Florida Laws and Hurricane Deductibles: Damages or Declarations.

     Florida has a lengthy statute which addresses Hurricane Deductibles. The Florida Statute, Sub-Section 627.701(4)(a), applies to policies issued or renewed on or after May 1, 2005. This effective date reflects the Florida visitation in 2004 of Hurricanes Charley, Frances, Ivan and Jeanne, and the 2005 visitation of Hurricane Wilma. This lengthy Florida Statute has now given rise to 5 lengthy Federal Court opinions. Any discussion of the statute and these cases is difficult, and a short discussion runs the risk of leaving out something important. This discussion will be kept as short as possible in this post in order to point out how the Florida Legislature and at least 5 Federal Court rulings in Florida have so far treated the recent use of Hurricane Deductibles.

     The Florida Hurricane Deductibles Statute requires certain language in specified pitch or points:

Any policy that contains a separate hurricane deductible must on its face include in boldfaced type no smaller than 18 points the following statement: THIS POLICY CONTAINS A SEPARATE DEDUCTIBLE FOR HURRICANE LOSSES, WHICH MAY RESULT IN HIGH OUT-OF-POCKET EXPENSES TO YOU." A policy containing a coinsurance provision applicable to hurricane losses must on its face include in boldfaced type no smaller than 18 points the following statement: "THIS POLICY CONTAINS A CO-PAY PROVISION THAT MAY RESULT IN HIGH OUT-OF-POCKET EXPENSES TO YOU."

     Personal lines residential property insurance policies containing a separate Hurricane Deductible and that are subject to the Florida Statutes, must also comply with the following requirements of Sub-Section (4)(b) of Section 627.701:

Beginning October 1, 2005, for any personal lines residential property insurance policy containing a separate hurricane deductible, the insurer shall compute and prominently display the actual dollar value of the hurricane deductible on the declarations page of the policy at issuance and, for renewal, on the renewal declarations page of the policy or on the premium renewal notice.

These statutory provisions have caused a Hurricane of Judicial interpretation in 5 reported rulings by 3 Federal Judges. All 5 available rulings have been made in Federal Cases in the Southern District of Florida.

Profits Up, Payments Down: Hurricane Winds Still Blow -- Part 2.

     The second reason for a large increase in profits for Property Insurance Companies, besides the reductions in Insurance Coverage discussed in Part 1 of this post, is an increase in Premium charges.

     Increased Premiums are abetted by Computer Models that project Catastrophic Losses on a more frequent basis than they occur.  As posted here previously, these Computer Models are not authorized by State government, and Florida is an example, in part because they are often wrong.  The Computer Models are, in addition, predicated more on opinions and projections than on demonstrated facts.   Nonetheless, these Computer Models favor the imposition of high Premiums because they are used to predict more Catastrophes which trigger CatClaims in greater numbers and for more dollars.

     Again, for a comprehensive newspaper report which summarizes trends in Insurance Coverage Reductions and Insurance Premium Increases, an excellent report is by Joseph B. Treaster, "Insurers Shift Cost Burdens to Homeowners" p. C1, col. 2 (New York Times Business Day Nat'l Ed., Fri., Nov. 23, 2007).

     Premium Increase trends may be leveling off if predictions are accurate for 2008.  This is the conclusion of Dr. Robert P. Hartwig, CPCU, President of the Insurance Information Institute, in his "Special Report: Earlybird Forecast 2008" posted online by the III on December 17, 2007.  Dr. Hartwig averaged various forecasts and arrived at an average among them of a 0.3 percent decline in Property/Casualty Insurance Premiums.  Newspaper reports have reprinted this average projection.  See, e.g., Lavonne Kuykendall, writing for Dow Jones/Associated Press on Dec. 18, 2007, published online by South Florida Sun-Sentinel.com.  Dr. Hartwig's conclusion is that premium growth is "Stuck in Neutral," if these projections are accurate.

     "Neutral" is of course a relative term.  As Dr. Hartwig points out in his post, in 2007 Property and Casualty Insurance Companies are on track to post one of their best underwriting results since about the time of the Stock Market Crash year of 1929.  If industry predictions reflected in the post are accurate, Dr. Hartwig also points out that 2008 Premiums would decline for the first time since the middle year of America's involvement in World War II, or since 1943.

     The "Earlybird Forecast 2008" includes a table listing 10 analysts and their projections.  The average of a 0.3 percent decline in 2008 P/C Premiums does not account for the weight of their projections.  For example, Tillinghast and Fitch forecast increased Premiums, at 1.1 and 0.1 percent respectively.  Merrill Lynch and Standard & Poor's are shown in the table as forecasting a continuation of the level of Premiums from 2007 to 2008 without projecting increases at this time.

     Time will tell. 

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Profits Up, Payments Down: Hurricane Winds Still Blow -- Part 1.

    In 2005, Property Insurance Companies paid out $41,000,000,000.00 in Claims resulting from Hurricane Katrina.  After that, Property Insurance Companies reported a then-record profit of $44,000,000,000.00.

     In 2006, Property Insurance Companies set a new record for profit, eclipsing the record for profit they set in 2005.  Property Insurance Companies reported a profit of $64,000,000,000.00 in 2006.

      To begin with, Insurance Companies are in business.  They exist, like other businesses, to make profits.  That is sometimes seen by some as the beginning and the end of their current business model as an industry or business sector.  Nonetheless, many people who run Insurance Companies pursue practices that come from a long-held view of the Insurance business as a business that is infected with a public trust.

     News of the current intersection of Insurance Companies and Profits is told by Joseph B. Treaster, "Insurers Shift Cost Burdens to Homeowners" p. C1, col. 2 (New York Times Nat'l Ed., Friday, Nov. 23, 2007).  In this comprehensive and thoughtful report, the reasons for Insurance Companies' current financial success with Property Insurance are laid out.

     Things have not always been so profitable for Insurance Companies.  In 1992-- the year of Hurricane Andrew -- Homeowner's Insurance Companies paid out $1.27 on Catastrophe Claims for every $1.00 of Premium they collected.  Comparisons can aid in understanding.  The same figures for 2005 compare very well, for example:   In the year of Katrina, Homeowner's Insurance Companies paid out $0.715 in Catastrophe Claims for every $1.00 of Premium they collected.   What did they do different to increase profits and reduce costs in the 13 years in between Hurricane Andrew and Hurricane Katrina?  They began to do the same things they are doing now.

     Basically, Insurance Companies have increased their profits in that time in two ways.  They have reduced Coverage and increased Premiums.

     To avoid too great a length in one place at one sitting, this post will be broken into two parts.  This first part will take a look at some of the things that Property Insurance Companies are doing to decrease the amount and kinds of Coverage they offer.