SPECIAL REPORT: Weak insurers put Floridians at risk
Millions of Floridians now bet their homes on property insurers that teeter on the edge of financial failure, a Herald-Tribune investigation has found.
These companies look nothing like the Allstates and State Farms that insure the rest of America -- legacy carriers that command bankrolls the size of small nations.
Instead, because State Farm and Allstate are fleeing Florida, a growing number of homeowners get their insurance from tiny, untested companies that have a few million dollars in the bank but insure billions worth of property they could never hope to rebuild on their own.
No one knows what will happen when the next big storm strikes Florida shores. But the signs are not promising.
Over the past year, without having to weather a single hurricane, Florida led the nation with a half-dozen property insurance failures. For the first time, state regulators openly warn that more failures will come, even if a storm does not.
The Herald-Tribune spent more than a year examining Florida's property insurers, tracing the ownership of more than 70 companies through shell corporations and reviewing the financial filings of each. It found:
One in three privately insured Florida homeowners relies on insurers that exhibit one or more signs of financial risk.
More than 100,000 homeowners relied on companies barely capable of paying for house fires, let alone hurricanes. These insurers' reserves come so close to the state's $4 million minimum requirement that they operate with only a few hundred thousand dollars of their own to pay claims.
During the 2009 hurricane season, at least 38,000 Florida homes were insured by companies state regulators knew would fail. Homeowners were not told until after hurricane season, when one company was shut down and the other had to sell.
Lawmakers and regulators have ignored warnings and encouraged private companies to stretch their limited cash further. They have pushed companies to insure more and more homes without increasing the money set aside to pay claims, a practice that put state residents farther out on a limb.
Larger dangers loom. Despite rising property values, one in three Florida carriers has decreased the cash set aside for storms.
The Florida-only carriers that provide the majority of hurricane coverage in this state now stretch their limited cash nearly twice as far as they did before 2004. They do it by buying a form of backstop insurance, called reinsurance, that is supposed to kick in and prevent insurers from failing when major catastrophes strike.
But insurers still must have their own money to pay what amounts to a deductible. And after every storm they need cash to operate and pay claims until they can collect on their backstop policies.
Experts point out that even companies with the best reinsurance policies can fail if they experience cash-flow problems.
In simplest terms, the average Floridian with a $350,000 house is insured by a company with less than $750 in hand to pay for that home. By contrast, the average carrier had $1,300 in 2003.
That same year, Allstate and other well-funded insurers had nearly $4,000 banked for the same risk.
"It is the Florida Ponzi Scheme," said Miami agent Phil Lyons, secretary of the Independent Insurance Agents of South Florida.
Regulators, insurance executives and industry lobbyists argue that the system, perhaps flawed, is all that Florida has to fill the yawning hole left by the mass exodus of national insurers.
"What were the options?" asked Sam Miller, vice president of the Florida Insurance Council, the industry's largest trade group in the state. "I don't think any other plan would have worked."
Yet among insurance insiders there is unease and growing alarm.
"There should be bells and whistles going off everywhere," said Jeff Grady, president of the Florida Association of Insurance Agents, where chasing down rumors of failing insurers has become the trade group's recent obsession.
"On the surface it may appear things are OK, but below the surface, things are really troubling."
WHY UPSTART INSURERS DOMINATE IN FLORIDA
Beginning with Hurricane Andrew in 1992 and accelerating after Katrina in 2005, Florida's property insurance market changed dramatically.
State Farm and Allstate, combined protectors of one-third of Florida homeowners before 2004, led a wave of withdrawals, followed by Nationwide, USAA, Hartford and Travelers.
In their place arose what insurance expert Robert Klein, director of the Center for Risk Management and Insurance Research at Georgia State University, calls the "Florida-zation of cat risk."
These are the insurance companies that only do business in Florida, taking an all-or-nothing gamble on the state's weather.
In 1992, these concentrated risk-takers insured just 6 percent of Florida. Today, including the Florida-only subsidiaries of national insurers, they cover 71 percent.
Insurance, historically, has been an industry built on huge reserves. Firms amass a foundation of capital, then risk that money by promising to repay homeowners in the event of losses.
Profits, historically, came from the interest earned on the money that sits waiting to be paid out.
All that has changed. In Florida, insurers are now risk-brokers, players with relatively little money and a lot of leverage. In place of huge cash reserves, they have reinsurance -- essentially insurance policies for insurance companies -- that pays off in a major disaster. Those policies are so costly that most companies have little money left to build reserves.
Reinsurance enables fast growth. Instead of building up a company slowly by amassing enough surplus to write more policies, new insurers can pledge a portion of future premiums and instantly take on thousands more customers and billions more dollars in hurricane risk.
The formula has helped springboard start-up insurers into multibillion-dollar enterprises in months. But it has crashed others just as quickly, putting thousands of Florida homeowners at risk.
Even in 2000, before the explosion of single-state carriers in Florida, A.M. Best, the nation's oldest financial rating company, issued a report warning that the state was growing companies without the financial depth to survive a single hurricane, let alone the state's average of 2.5 a year.
It accused Florida, paying these new companies to assume policies from the state insurance pool, of handing the riskiest properties to "thinly capitalized, opportunistic insurers."
NOT ENOUGH MONEY TO PAY OFF HOUSE FIRES
Miami businessmen Alexander Anthony and Albert Fernandez sold their security guard business to launch Northern Capital Insurance Group.
They rocketed from $476,000 in revenue in 2006 to more than $95 million by 2008, adding a second carrier, Northern Capital Select, in the process.
Last September, Inc. Magazine heralded the company as "America's Fastest Growing Private Company."
The award came with publicity and a congratulatory letter from Gov. Charlie Crist, thanking the carrier for its phenomenal growth.
But the meteoric rise also came at great risk, mostly to customers. State records show the group has the most concentrated roll of the dice in all of Florida.
Three of every four policies written by the companies were in a 143-mile stretch of the Atlantic coast -- Miami to Palm Beach -- that presents the single greatest hurricane threat in all of America. For as far back as the records go, a Category 1 storm has rolled ashore here at least every four years.
The exposure of these two insurers during the 2009 hurricane season was twice that even of Citizens Property Insurance, the state-run company that covers homes deemed too risky by other insurers. Six other Florida carriers are in the same boat, carrying greater concentrations of risk in Miami than Citizens does.
"It scares me. I fear when the next storm comes. I fear if it lands anywhere near here," said Dulce Suarez-Resnick, a Miami agent who is past president of the Latin American Association of Insurance Agencies.
While Northern Capital Select had the highest concentration of hurricane risk in Florida, it also had the least amount of money.
Northern Capital Select's financial statements and reinsurance contracts show that in 2009 it was operating with barely a $300,000 cushion above what it needed to meet state solvency requirements -- not even enough to cover a handful of house fires.
The larger Northern Capital had greater assets, but also more risk, leaving it at the start of 2009 just above what state laws required for its exposure.
The problems started when the company was formed. Under the old business model of property insurance, the Northern Capital companies would have needed more than $130 million set aside to meet state requirements for the value of homes they insured in Florida.
They did it with less than $20 million.
The companies bridged the gap by buying huge amounts of reinsurance from overseas investors willing to gamble against a storm. According to third-quarter financial statements, the carriers by September 2009 spent $64 million of the $94 million in premium they collected buying that protection.
Between what the insurers paid for reinsurance and what they paid in other overhead costs, contracts filed with regulators show, there was not enough money left to pay claims. The constant losses destroyed reserves. By last September, Northern Capital Select barely met the state solvency requirement.
Poorly Worded Life Insurance Policies Can Cost Survivors Big Bucks
Feb 02,2010 00:00 by Forbes.com
Anyone with a life insurance policy they haven’t carefully read will want to do so ASAP after they learn about one widow’s unsuccessful fight with her dead husband’s life insurer.
It all started when Craig Bauer, an executive at manufacturer Omron Electronics, died in June 2006 of bacterial meningitis following a business trip that included stops in Brazil, China and Japan. Bauer had life insurance through his employer. The policy stated that in the event of his dying accidentally, his survivors would be entitled to a payment representing “five times base annual earnings to a maximum of $250,000.”
After his death Bauer’s widow submitted a claim to the life insurer, Reliance Standard Life Insurance Co. She figured that since her husband’s yearly base salary had exceeded $250,000, the payout would be that amount, quintupled: $1.25 million.
But when the check from Reliance finally arrived, it was for $250,000 (plus a nominal amount of interest.) Seems the insurer was claiming that the $250,000 maximum referred to in Bauer’s policy applied to the overall payment – and not to the deceased’s annual salary.
The Bauer-Reliance dispute ultimately wound up in court. Now a federal judge in Philadelphia has ruled Reliance was correct to pay out only $250,000; the insurer’s interpretation of the disputed phrase was reasonable, according to the judge, and did not render meaningless any other terms in the policy.
Florida ban on texting and driving may pass in 2010
by Bloomberg.com Feb 19,2010
On Jan. 3, 2008, Russell Hurd waited for his daughter at Walt Disney World in Orlando. They were about to plan her dream theme-park wedding.
But Heather Hurd was killed on her way to the meeting. She was a passenger in her fiance's car, which was stopped at a light when a trucker who was texting on his phone slammed into the vehicle and eight others. Heather and another woman were killed instantly, and six others were injured.
We went from planning a wedding to planning a funeral," Hurd said. "I don't want another family to feel what I feel."
The trucker pleaded no contest to a careless driving citation and has since died. This year, some Florida lawmakers hope to ban texting and driving, something 19 other states have already done.
More than a dozen bills are pending in the Florida House and Senate; some call for a ban on texting, others, a ban on cell phone use entirely. Hurd and others say that despite similar bills' lack of passage in previous years, the issue of texting while driving is too big to ignore in 2010.
"This topic has gotten so much interest as of late, that it's more likely than not that something will get passed," said Marianne Trussell, the chief safety officer of the Florida Department of Transportation.
It's unclear exactly how many crashes or fatalities have occurred in Florida because of texting; law enforcement doesn't collect the data during investigations unless a driver voluntarily admits to being distracted.
The National Safety Council released a report in January that claimed 28 percent of all traffic crashes -- that's about 1.6 million crashes a year -- are caused by drivers using cell phones or texting.
It's enough of a problem that U.S. Transportation Secretary Ray LaHood announced a federal ban on texting for commercial truck drivers last month.
According to the Federal Motor Carrier Safety Administration, drivers who text take their eyes off the road for an average of 4.6 seconds -- which means that at 55 mph, a driver is crossing the length of a football field while not looking out the windshield.
According to Sterling Ivey, Gov. Charlie Crist's spokesman, the governor has not seen any specific bill language but has said he will support legislation that bans texting while driving.
Trussell said a possibly hindrance to passage is whether police will be able to enforce such laws.
"An unenforceable law is worse than no law at all," she said.
State Rep. Janet Long, D-St. Petersburg -- a co-sponsor of a texting-while-driving ban bill -- admits fiddling with her phone while behind the wheel.
Long said she was driving to a meeting recently and almost ran into three big poles when she looked down at her phone.
"I realized how quickly one or two seconds could change the dynamic behind the wheel," Long said. "It scared me."
Long said response to her bill has been "mostly positive," with some folks opposed on the grounds that banning texting is an invasion of privacy.
"The innocent people on the highway have the right to be able to be on the road without having to fear that someone is texting," she said.
Hurd, who lives in Maryland, testified before that state's legislature about the issue in 2008, some two months after his daughter died. The bill didn't pass that year, but it gave Hurd and his wife a channel for their grief. In 2009, the Maryland enacted "Heather's Law," which bans the use of texting while driving.
Hurd is hoping for similar success this year in Florida. He's planning to visit Tallahassee to tell the Legislature about his daughter's life and death.
The day: March 10, which would have been Heather's 29th birthday.
What is Supplemental Health Insurance
Supplemental health insurance does what the name says-it fills in specific health insurance gaps or gives you more coverage for certain needs (like cancer, accidents, or hospital indemnity).
It's a good way to make sure you have enough coverage for situations that are typically expensive, but it isn't a substitute for regular health insurance.
Supplemental health insurance is designed to kick in right when you need it most. The sad truth is that medical bills are the leading cause of bankruptcy in America.
If you find yourself in this kind of a situation, supplemental health insurance can help your family stay out of debt and keep your current standard of living.
So what does it cover? Typically, it helps with expenses that might not be covered by worker's compensation or your regular health insurance, like your deductibles.
Supplemental health insurance can also help with indirect expenses. The things you don't really think about popping up. Like if you need to send a child to day care, or if you need to pay to travel a long distance to get the best possible care.
Depending on the policy you choose, it could also cover your monthly bills while you're out of work and other aspects of daily life.
Supplemental health insurance is often a great idea for:
-Parents with children who depend on them
-People with limited savings
-Those who want extra security in the case of a crisis
-People with limited health insurance coverage
-People with demanding careers
-Those who are at higher risk for cancer
Florida Insurance Commissioner Says Chinese Drywall Not Covered Under Homeowners’ Policies
Chinese drywall is not a covered peril under homeowners’ insurance polices, according to the Florida Insurance Commissioner. Speaking to state legislators, Kevin McCarty warned that insurers have no obligation to cover defective Chinese drywall.
The U.S. Consumer Products Safety Commission (CPSC) has received about 1,897 reports from residents in 30 states, the District of Columbia, and Puerto Rico concerning Chinese drywall. Gases emitted from Chinese drywall are being blamed for significant property damage, including damage to HVAC systems, smoke detectors, electrical wiring, metal plumbing components, and other household appliances. These gases also produce a sulfurous odor that permeates homes, and cause metals, including air conditioning coils and even jewelry, to corrode.
People living with Chinese drywall have also suffered eye, respiratory and sinus problems that may be linked to the gases. The drywall problems have forced many people out of their homes, and some families are dealing with the heavy financial burden of paying both rent and mortgage payments. Those unable to afford additional rent have no choice but to stay in their smelly – and possibly hazardous – homes.
Florida has long been deemed “ground zero” in the drywall disaster. More than 1,300 reports to the CPSC have come from that state, and it is estimated that as many as 35,000 Florida homes could be impacted.
According to McCarty, having Chinese drywall in a home is “a malfunction based upon a defective material that was installed in the building. And that historically has been excluded from a homeowner’s policy.” He also warned that homeowners could lose coverage altogether if they move out of their homes for extended periods of time under an “underwriting standard” that allows companies to drop coverage of unoccupied dwellings.
In McCarty’s view, drywall manufacturers are liable to the damage their wallboard has done to homes in Florida. Hundreds of Chinese drywall homeowners in the U.S. have already filed lawsuits hoping to recover restitution from Chinese manufacturers for the damage done to their homes, but the process is proving difficult.
For instance, one of the companies suspected of manufacturing tainted drywall, Taishan Gypsum Co. Ltd., is controlled by the Chinese government. As we reported previously, Taishan was recently hit with a default judgment by U.S. District Court Justice Eldon E. Fallon, who is overseeing the massive Chinese drywall litigation in federal court in Louisiana, for failing to respond to lawsuits.
Recently, another Chinese firm, Knauf Plasterboard (Tianjin) Co., Ltd., offered to waive its rights under The Hague Convention for the Service of Process Abroad for homeowners who sign on to an omnibus class action lawsuit against the firm by December 2, 2009. The Hague Convention for the Service of Process Abroad requires claimants to pay approximately $15,000 per lawsuit, which allows for the translation of legal documents into Chinese and to have them presented to the appropriate authorities in China to obtain service on the Chinese drywall manufacturers. These requirements were a huge obstacle to claimants, and Knauf’s offer to waive them will greatly streamline the litigation process for plaintiffs who make the deadline.
To be eligible for the omnibus lawsuit, claimants must submit pictures or other proof that they have wallboard made by Knauf Plasterboard in their homes by December 2, 2009. Any Chinese drywall homeowner interested in becoming a party to this lawsuit must start now by contacting an attorney and arranging to have their home inspected.
Parker Waichman Alonso LLP, the first law firm to file a federal Chinese drywall lawsuit, is offering assistance to any homeowner interested in joining the Knauf Plasterboard lawsuit. Free consultations are available through the firm’s website at www.yourlawyer.com, or by calling 1-800-LAW-INFO (1-800-529-4636).
The offer applies only to the consolidated federal litigation, not individual cases. The December 2 deadline is a hard deadline, and the omnibus complaint will not be amended at a later date to add more people. Claimants will also face a second deadline – December 14 – by which time they must have filled out a profile form.