Insurance Journal Florida Supplement 2017-04-17

FOCUS ON FLORIDA Debate Over Workers’ Comp Reform Citizens Posts 2016 Loss Impact of NCCI Rating Challenge

Contents

April 17, 2017 • Vol. 95 No. 8 • Focus on Florida

Florida 4 Florida Launches AOB Resource, Education Webpage for Consumers

6 Q&A With Florida Commissioner Altmaier, an Agent Turned Regulator

4

FLORIDA LAUNCHES AOB RESOURCE, EDUCATION WEBPAGE FOR CONSUMERS

8 Citizens Seeks Help of Florida Agents in Fighting AOB Abuse 10 Citizens Blames Claims Abuse for Net Loss of $27M in 2016; Urges Reform 14 1347 Property Insurance Holdings to Expand Into Florida Homeowners Market 16 Florida Workers’ Comp Reform Battle Far From Over 16 Florida to Help Foster Children Get Drivers’ Licenses, Insurance

Idea Exchange 13 Commentary: Challenge to NCCI Rating Process Could be Significant for Florida 18 E&O: Communication With Clients Key to Avoiding Professional Liability Claims

13 CITIZENS SEEKS HELP OF

FLORIDA AGENTS IN FIGHTING AOB ABUSE

6

Q&A WITH FLORIDA COMMISSIONER ALTMAIER

Departments

11 People 12 Florida Fraud Round-up

10 CITIZENS BLAMES CLAIMS ABUSE FOR

NET LOSS OF $27M IN 2016; URGES REFORM

2 | INSURANCE JOURNAL | FOCUS ON FLORIDA APRIL 17, 2017

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Florida

Florida Launches AOB Resource, Education Webpage for Consumers

T

he Florida Office of Insurance Regulation (OIR) has launched a new webpage as part of its efforts to educate Florida consumers about the state’s ongoing challenges with assignment of benefits abuse.

The AOB resource webpage has been added to the OIR website and offers information about what an AOB is – a document signed by a policyholder that allows a third party, such as a water extraction company, a roofer, or a plumber, to “stand in the shoes” of the insured and seek direct payment from the insurance company. The site also includes information for Florida’s consumers about changes needed to discourage

fraudulent AOB activity.

AOB’s have become prevalent in water and roof claims across the state, and because of loopholes in the way it is being used in the marketplace costs for homeowners are going up from unnecessary litigation associated with certain AOB claims, OIR advises.

The page also provides information on what consumers should expect in terms of rate increases because of the abuse.

“The new webpage provides a sobering projection of insurance rate increases homeowners can expect to see in the next five years without any legislative reform,” said a statement from OIR. The site includes various presentations,

4 | INSURANCE JOURNAL | FOCUS ON FLORIDA APRIL 17, 2017

video links, and news articles related to the AOB abuse.

“This issue is a primary legislative priority of [OIR] and our number one objective has been, and will continue to be, holding consumers harmless. [OIR] is supportive of legislation addressing attorneys’ fees and providing for additional protections for consumers,” the page advises consumers, with a link for visitors to follow if they wish to get involved or contact their legislative representative.

OIR has primary responsibility for regulation, compliance and enforcement of statutes related to the business of insurance and the monitoring of industry markets.

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FOCUS ON FLORIDA

| News & Markets

Q&A With Florida Commissioner Altmaier, an Agent Turned Regulator

By Amy O’Connor

F

lorida Insurance Commissioner David Altmaier is just about to complete his first full year in the position since taking over for Kevin McCarty last May, and there hasn’t been a dull moment since he took the post.

Altmaier, 35, is one of the youngest insurance regulators in the country, but his experience with the industry began more than 10 years ago as a young agent with Peggy Browning Insurance Agency in Tallahassee. He began working at OIR in 2008 as an examiner in the property/casualty oversight unit and quickly rose through the ranks to become chief analyst for that department in 2012 and director in 2014. In March, 2015 he was named OIR’s deputy commissioner for P/C. Even with his experience at OIR and as an agent, filling the shoes of McCarty who served 13 years in the position was no easy task. From workers’ compensation court rulings to rate increases to the state’s first hurricanes in 11 years, not to mention assignment of benefits abuse, Altmaier’s first full year has been a busy one.

In his first interview with Insurance Journal, conducted at the Florida Chamber of Commerce’s Insurance Summit in February, Altmaier discussed how he hopes to work with the insurance industry, and how his experience starting off

as a young agent in the business prepared him for his current role.

Insurance Journal (IJ): You’ve

almost completed your first full year as insurance commissioner, though you already worked at OIR so you had experience with the various hot topics. But now, as head of the department, what are some of your priorities?

David Altmaier: I have a view that our insurance consumers should have a marketplace that makes reliable insurance products available to them at affordable prices.

My priority, throughout the course of our day-today regulatory activities, is looking for things that could potentially challenge that notion and determining what we can do to remove that challenge from the market so that consumers can still have access to those products… that’s what we’re trying to accomplish.

IJ: As a former insurance

agent who worked for an insurance agency, you’re familiar with how the industry works. Have you found that useful in your new role and in working with consumers?

Altmaier: I would go further than useful. I would say that it’s been invaluable experience in my career as a regulator.

The interesting part about working in the insurance agent’s office is that was my first taste of the insurance industry. My first lessons learned about insurance

6 | INSURANCE JOURNAL | FOCUS ON FLORIDA APRIL 17, 2017

David Altmaier were learned through the perspective of the consumer. Everything from buying new insurance, whether it’d be auto, or home, or life, or longterm care, to filing claims, to paying premiums, to questions about why the rates are going up; all of those things I gained familiarity with through the lens of how a consumer deals with [it].

That’s really framed my perception of our regulatory activities. I always keep in mind while, at the end of the day, it’s a brief period of time on my resume, it’s such

a critical experience in my opinion, for me to have that perspective as we go through our day-to-day activities.

IJ: Do you find yourself now

that you are on the consumer side, having to be more protective of the consumers or looking at the industry a little bit more suspiciously?

Altmaier: I don’t think that there’s a suspicion per se because I think the insurance industry – they have a goal to take care of their consumers.

The important thing is to make sure that we maintain a balance between consumer INSURANCEJOURNAL.COM

protections and market stability. Obviously, at the end of the day, we’re going to make the decisions that we believe are in the best interest of the consumers.

We just have to be careful that we don’t sacrifice long term consumer protections for short term consumer protections…We don’t want to cause insurance products to become less reliable, or less available, or less affordable in the long run because of decisions that we make that might have some perceived short term advantage for consumers.

IJ: You said the insurance

industry’s goal is to take care of consumers. That is a point that is very important and often lost on those outside the industry. How could the industry could do better at making that point known?

Altmaier: It’s a good question. I think the best thing that they could do is just make sure that as they operate, especially on the claims side, is to make sure that they are putting their best foot forward.

A saying that we like to banter around in the office is that you’re only as good as your worst claim. You have to take care of every single claim that comes in the door because that’s why consumers buy insurance products. It’s a promise to them that when they have a claim, the company’s going to be there to indemnify them for that loss. To make sure that that experience is positive for the

consumer, I think, is the most important thing a company can do to demonstrate to its policyholders that they are there to take care of them in their time of need.

IJ: Now that you’re in the position of regulator, how do you think that the industry and regulators can be more effective in working together?

Altmaier: We have a very fine balance that we walk. At the end of the day, we’re a regulator.

It’s our job to enforce compliance with Florida law. It’s our job to make sure consumers are treated fairly. Insurance is just such a different business than others because companies are selling a promise to their consumers. That’s a much different product than you

challenges that they face in meting out those promises.

For example, we can understand a little bit better about what they’re seeing on the claims side, what they’re seeing on the premiums side, on the competition side, and things of that nature.

I’ve always believed that as regulators, we make our best decisions when we consider as many different perspectives on those issues as we can so that the decisions we ultimately make are as informed as they can possibly be. That means liaising with the industry. It also means spending a lot of time talking with consumer groups, consumer advocacy groups, agency groups…

We spend a lot of time working with the industry, but we also spend a lot of time working with all of the other industry stakeholders. Because even though we only directly regulate the insurance companies, the decisions we make with respect to them impact so many other people that might not necessarily be in our jurisdiction.

I do think there’s opportunities for us to partner with the industry to better

“The important thing is to make sure that we maintain a balance between consumer protections and market stability”

INSURANCEJOURNAL.COM

might buy at any other kind of retail store. It’s incumbent upon us to make sure that the companies operating in our state are able to make good on those promises when that day comes.

That being said, there are opportunities that even as a regulator, we can partner with the industry to make sure that we understand the

understand the challenges that they face. That’s also true for the various other stakeholders that are in our marketplace.

IJ: Do you think that the

industry unfairly gets a bad reputation?

Altmaier: Sometimes it’s unfair, and sometimes it’s fair ... they make for an easy boogeyman. That’s unfortunate, because I know a lot of people in the industry. I know that they all have very good intentions. They all are interested in servicing their consumers and making sure that they have the best experience possible.

Any time you have a bad experience with your claim or things of that nature, it’s easy to point to the insurance company and say,

continued on page 17

APRIL 17, 2017 FOCUS ON FLORIDA | INSURANCE JOURNAL | 7

FOCUS ON FLORIDA

| News & Markets

Citizens Seeks Help of Florida Agents in Fighting AOB Abuse

By Amy O’Connor

A

s the Florida property market fights what has so far been a losing battle against attorneys and unlicensed contractor firms over water loss claims and assignment of benefits (AOB), Citizens Property Insurance Corp., Florida’s property insurer of last resort, has put out an urgent call to its agents to assist the company in tackling the increasing abuse.

In a call with the state-run insurer’s Market Accountability Advisory Committee (MAAC) last month, Carl Rockman, head of Agency Management for Citizens, said the company has taken “a hard look” at its agencies’ claim reporting times, defined as the day the claim occurred versus the day when the claim is first reported to the carrier.

In doing so, Citizens identified a small percentage of agencies that Rockman called “a little out of pattern”

from the average reporting time of most Citizens’ agencies.

Rockman told the MAAC that it has been tracking agency claims data across the board, and according to internal data from 2016, 154 agencies reported claims more than 10 days after an incident occurred during the last six months. That number is actually relatively low considering the 4,977 Florida agencies currently contracted with Citizens.

However, geographically, the majority of those 154 agencies are located in the Tri-County area of Miami-Dade, Broward and Palm Beach, where the abuse has been the most rampant. The average number of days it takes an agency in this area to report a claim from the date of loss is also longer than agencies in other parts of the state. Of the 154 agencies reporting claims more than 10 days after the date of loss, those in the Tri-County area took about 14 days on average compared with 12 days for

8 | INSURANCE JOURNAL | FOCUS ON FLORIDA APRIL 17, 2017

agencies outside of the Tri-County area.

Citizens’ data also found smaller agencies generally had more reporting delays.

“The sooner the insurance company is involved in that process the better job they can do … this strategy is all about that,” said Rockman.

The timing of when a water damage claim is reported is crucial, Citizens says, and is the reason the company launched its “Call Citizens First” initiative last year.

The carrier has found a strong correlation between the average number of days it takes for a claim to be reported and the likelihood of a lawsuit being filed against the insurer. Barry Gilway, CEO and executive director of Citizens, said in February that the average water damage claim is received by the company 50 days after the date of loss, and 76 percent of water loss claims in 2016 were submitted to the company in the form of a lawsuit.

In other words, Citizens is sued before INSURANCEJOURNAL.COM

it has inspected or adjusted most water damage claims. The cost of water damage claims has almost doubled in five years — with the average cost last year being $19,600.

“I agree 100 percent with pushing the ‘Call Citizens First’ strategy, but we have got to get the insureds reporting these claims coming through the agent or by calling Citizens first,” Gilway said at the MAAC meeting. “Either way, we’ve got to have them report through that mechanism before they tie themselves up with an attorney or a public adjuster who is going to bring forth litigation.”

The insurer is hoping that with the help of its agents, it can stem this growing problem that it blames for a $27.1 million net loss in 2016, its first loss since 2005.

Its new strategy is to work with and educate the agencies that are not already following strict claims procedures, including focusing on agency manager engagement or best practices like point of sale customer education; transferring policyholders directly to Citizens when a loss is reported through the PolicyCenter; and using Citizens branding on an agent website for claims service.

Rockman said the company has “strong evidence” that 54 percent of the time, claims that do not go into litigation came from customers that contacted their agents first.

“Our job is to make sure our agent community understands the importance of that moment of truth and getting that claim to Citizens as quickly as possible,” Rockman said.

Rockman said its Citizens Field Agency Management team will be working with the identified agencies to find out why these claims are not being reported right away, noting that many may not be aware of the claim reporting timeframe. It will also work on educating the agencies about what others with better than average reporting times are doing, and recommend the agencies adopt those practices.

“It’s just raising the agency’s level of awareness around how important it is to report claims if they are reported [first] INSURANCEJOURNAL.COM

to the agency,” Rockman said. “But more importantly, to inform their customer and reinforce the message what our Call Citizens First campaign calls for — to make sure they are calling Citizens if they have a need for any type of claims service.”

Rockman acknowledged that in some cases an agent may be notified by their customer of an incident, but they opt not to file a claim because of the cost of the deductible or for other reasons. He said Citizens has heard from its agents about these situations but urges them to still get the carrier involved in the conversation.

“What we really want to make sure is that the agency owner and everybody in the agency understands one thing — that they are contractually obligated to report a claim to Citizens if a claim is reported to them … no ambiguity, no gray area,” Rockman said. “If a customer informs you they have a loss or claim — you must report it, it’s very simple.”

Steve Bitar, chief of Underwriting and Agency Services, said it typically isn’t agents that are reporting the offending claims — 62 percent are reported by attorneys or public adjusters. But Citizens is hoping to work together with the agent community to have a positive impact on these trends.

“We are really trying to tackle it on many prongs, if you will, so we can see what the experience is,” Bitar said. “Maybe it is nothing more than an education opportunity … so we’ll be committed to bringing back our results as we embark on this path.”

Dave Newell is chair of the Citizens’ MAAC Committee and Education director for the Florida Association of Insurance Agents (FAIA) and the Citizens liaison for the FAIA. He said the message to agents is not that they are not doing their job, but that there is still a long way to go for the industry to educate consumers about this abuse.

He said the biggest takeaway for agents should be to get out in front to explain the claims process to clients and how an AOB can impact a claim.

So far, he said, the industry and agents

have been behind compared to the other side of the equation — contractors and attorneys — who have been visible and vocal with homeowners for several years now.

“There has been a longstanding communication from those saying ‘you shouldn’t talk to an agent or company, you should talk to us first because we can help you through this process better,’” Newell said.

“I think the industry is now rebounding that.”

He said FAIA’s agents have become more active in warning their communities about this abuse, from sending notifications to clients, to speaking at community meetings, to face-to-face meetings with their state legislators.

“That is where the disconnect and separation has been and that is starting to narrow. But it is such a wide band right now that it’s very tough to shorten in a short period of time,” he said.

The Florida Legislature is currently looking at several bills meant to address the issue, but Citizens’ Gilway said only one — Senate Bill 1038 — really tackles the heart of the problem, which the industry agrees is Florida’s one-way attorney fee statute.

The bill has yet to move out of committees since March 7.

Newell said regardless of what happens in the legislature, agents play an important role in the situation.

“We always promote the agent as being a trusted advisor, and I think in order to do that they have to be more proactive with clients. If they do that and talk about some of the concerns or pitfalls to an AOB claim, a client would certainly think twice in the situation.” he said. “I think the agent is in a little better position than what some would say is the big bad insurance company.”

But, he added, the industry still needs to continue putting out a consistent message to consumers.

“We have to have a continuation of getting out and talking about this problem … and how claims are adjusted with or without an AOB,” he said. “I think the industry is doing a good job now, but there has to be some forward thinking on this path.”

APRIL 17, 2017 FOCUS ON FLORIDA | INSURANCE JOURNAL | 9

FOCUS ON FLORIDA

| News & Markets

Citizens Blames Claims Abuse for Net Loss of $27M in 2016; Urges Reform

C

itizens Property Insurance Corp. will post a net loss for 2016, its first loss in more than a decade, as water loss claims, assignment of benefit (AOB) abuse and litigation costs increasingly impact the company’s bottom line, according to a statement from the Florida state-run insurer.

The Citizens Board of Governors was told last month the state’s insurer of last resort will post a $27.1 million net loss for 2016, its first since 2005. The company said the loss comes despite minimal damage from Hurricane Matthew, the first major hurricane to impact Florida in 11 years.

Without significant statutory reforms, Citizens will be forced to pass those higher costs on to its customers in the form of higher rates for the foreseeable future, said Citizens Board of Governors Chairman Chris Gardner.

“Every year, we rely on standardized, accepted actuarial principles to set our rates,” Gardner said “Last year, the same principles that provided rate decreases to our customers in recent years translated into hikes for 84 percent of our policyhold-

ers. Without legislative changes, that trend will continue.”

Citizens said the percentage of nonweather-related water claims – burst pipes, sudden dishwasher leaks, etc. – that move to litigation has skyrocketed, with each litigated claim raising the average claim cost by $20,000 or more. Citizens passes on these costs to Citizens policyholders.

The company said another factor driving rate increases is AOB, in which policyholders sign over policy rights to a third party, such as a repair company, who then controls their claim and deals directly with Citizens. These contractors assume all the benefits afforded the policyholders but bear few of the responsibilities, including cooperating with Citizens adjusters and reporting losses before repairs are made.

Citizens has borne the brunt of the abuse, which has been especially rampant in South Florida but is spreading throughout the state.

The Florida Office of Insurance Regulation has indicated that private insurance companies are facing similar trends.

In February, the rating agency Demotech

10 | INSURANCE JOURNAL | FOCUS ON FLORIDA APRIL 17, 2017

warned that AOB issues could adversely affect its ratings of Florida’s private insurance companies.

“The tragedy here is that the ultimate loser is the policyholder,” Gardner said.

“Higher insurance costs simply make it more difficult for more Floridians to own a home.”

Citizens has worked on controlling these costs by educating customers through its “Call Citizens First” campaign and working with other stakeholders, including the Consumer Protection Coalition, to advocate for statutory reforms.

The Florida Legislature currently is considering bills that address the AOB issue as part of the 2017 Legislative Session. Citizens supports Senate Bill 1038 and House Bill 1421, which would bolster consumer protections and clarify attorney fee provisions.

Neither bill has garnered support by legislators, so far. The session ends May 5.

Citizens Property Insurance Corp. was created in 2002 by the Florida Legislature as a not-for-profit alternative insurer for property owners who cannot find coverage in the private market.

INSURANCEJOURNAL.COM

PEOPLE | FOCUS ON FLORIDA

Brian Boone

Hylant has named Brian Boone president of its Orlando, Fla., location, effective April 10.

From 2009 to 2013, Boone held the role of employee benefits client executive at Hylant. He was most recently president of Fireside Health Care Center in Santa Monica, Calif.

As the Orlando office leader at Hylant, Boone will oversee associate development and assume the responsibility of business growth in the Employee Benefits and Property & Casualty sectors.

He replaces Andria Herr, who was promoted to senior vice president of employee benefits client strategy and resource development at Hylant’s corporate level.

Hylant was founded in 1935 and is a full-service insurance brokerage with 14 offices in Ohio, Michigan, Illinois, Indiana, Tennessee and Florida.

CNA has appointed David Haas as vice president of the company’s Florida branch, effective Feb. 23.

In this role, Haas leads the Florida branch and works on growing its relationships with producers, acceleraing CNA’s market presence and continuing to shape its portfolio. He reports to Rob Huber, senior vice president and Southern Zone officer.

Haas most recently served as managing director, State of Florida, for AIG. In this role, Haas was responsible for the execution of the sales strategy and management of the sales professionals in the state. As part of that role, he was also responsible for the oversight and management of the North and South Carolina territories.

Haas has also served in various other underwriting capacities at AIG, including Regional Underwriting manager for AIG Environmental and Senior Underwriter for AIG Risk Management.

American Integrity Insurance of Florida has promoted Justin Waters to vice president of Sales.

Waters has assumed responsibility for the company’s field sales, internal sales and agency management teams. He will work with employees to further American Integrity’s relationship with preferred independent agency partners throughout Florida, and expand the company’s share in the market.

In his most recent role as Sales director at American Integrity, Waters led a team of four external sales managers, working with each to develop and execute sales strategies specific to their territories. He also was responsible for recruiting and training new sales managers.

Waters started with American Integrity as an accountant in 2008, one year after the company’s

INSURANCEJOURNAL.COM

inception. He then became part of the Sales team.

The Tampa-based American Integrity Insurance offers property insurance, including home insurance and coverage for vacant homes, condominiums, manufactured homes and dwelling fire policies.

Underwriting manager and wholesale broker Greene & Associates, based in East Aurora, N.Y., has opened its an office in Bradenton, Fla., and hired Don Fuchs to its underwriting team.

Fuchs has more than 35 years of underwriting experience to the Greene team, spending the last 25 years owning and operating McKell Risk.

The opening of an office in Florida is Greene’s first venture outside of the Northeastern United States after opening a second location in Glastonbury, Conn., in 2016.

In operation since 1986, Greene & Associates specializes in the umbrella and excess liability market sector. The firm currently writes business in 49 states and the District of Columbia.

RPA Insurance Services, a Parsippany, N.J.-based insurance agency focused on providing business insurance products and services to specialized market segments throughout the U.S., has hired Rick Gross and Jennifer Gross to the company’s newly-formed Boca Raton, Fla., office.

They will focus on acquiring and servicing commercial real estate, construction and restaurant/ hospitality accounts in their new roles.

The Grosses have a combined 30 years’ experience as independent agents specializing in habitational and commercial real estate lines of business, including condominium associations and apartment buildings/complexes, and other commercial buildings such as strip centers, office buildings, warehouses and shopping malls.

As independent agents, they also insured restaurants and lounges, along with construction and trade contractors.

In addition, Joanne Kowalczyk recently joined RPA as the retail client service leader for U.S. operations.

Kowalczyk brings more than 25 years of insurance and reinsurance underwriting, sales and brokerage account management experience to her new role.

Prior to joining RPA, Kowalczyk was senior vice president at Aon plc where she helped establish the firm’s healthcare practice. She has held leadership positions at Employers Reinsurance Corp. and at Marsh Inc., where she placed all types of property and casualty lines for large, national accounts.

APRIL 17, 2017 FOCUS ON FLORIDA | INSURANCE JOURNAL | 11

FOCUS ON FLORIDA

| Fraud Round-up er crime,” said CFO Atwater. “To concoct the plan that he did is an elaborate act of fraud — one that undoubtedly drives up the cost of insurance for every Floridian.

I’m proud of our investigative team for getting to the truth and putting this man behind bars where he belongs.”

Florida Insurance Agent Gets 4 Years for $100K Premium Theft

Florida Man Arrested for Setting Car on Fire to Collect Insurance Payout

A resident in Orange County, Fla., is accused of committing an insurance scheme that included having his car stolen and destroyed to collect an insurance payout.

Chief Financial Officer Jeff Atwater announced the recent arrest of Michael Abrams on charges of arson, insurance fraud and grand theft after he was accused of devising a plan to have his 2016 Toyota Camry stolen and destroyed so that he could collect insurance.

In early December 2016, Orange County Fire Rescue (OCFR) responded to a fire scene involving a vehicle that had reportedly been stolen in the state of New York. When OCFR requested the assistance of the Florida State Fire Marshal’s Office to determine the cause and ori-

gin of the fire, investigators began to unravel Abrams’ story.

During interviews with investigators, Abrams admitted to paying an unknown male $300 to take and destroy his car. After reporting it stolen, Abrams filed an insurance claim totaling $10,000. The plan to destroy the car by setting it on fire was interrupted when the fire department was called to the scene of the crime.

Upon confessing to an active role in the burning of his car and the filing of an unlawful insurance claim, Abrams was arrested and charged with several felonies. Abrams was booked into the Orange County Jail, bail was set at $50,000, and he faces 20 years in prison if convicted.

“More often than not, acts of arson are committed in order to collect insurance payouts or to cover up a larg-

12 | INSURANCE JOURNAL | FOCUS ON FLORIDA APRIL 17, 2017

A former Florida insurance agent has been convicted and sentenced to four years in prison for stealing more than $100,000 from two elderly clients, according to a statement from the state’s Chief Financial Officer Jeff Atwater.

The Florida Department of Financial Services said that a scheme concocted

by Vinodh Raghubir began unraveling in late 2015 when employees with one of the client’s financial institutions, Fairwinds Credit Union, noticed that their client had written a large check to pay a life insurance premium.

However, that check was written to a contracted insurance agent instead of directly to the insurance company, which is standard procedure.

Concerned, the credit union staff immediately reported their suspicions to AmeriLife Group, the company that managed the insurance agent, according to DFS. AmeriLife Group asked the DFS insurance fraud division

to launch an investigation.

Their investigation revealed that Raghubir gained the trust of two clients, both over the age of 70, and convinced them to purchase life insurance policies and oil annuities. He prepared the paperwork and collected premium payments, but Raghubir never purchased the products. Instead, he took their money and deposited it into his personal account. In total, he collected $123,898.

“As a former banker myself, I applaud the keen awareness and good judgement exercised by the Fairwinds Credit Union employees who flagged this transaction,” said CFO Atwater. “Floridians are the eyes and ears of their community, and I am proud that savvy professionals identified this crime so we were able to stop his fraud.

Stealing from the elderly will absolutely not be tolerated.”

The Orange County State Attorney’s Office prosecuted the case. In addition to his four-year sentence, Raghubir is ordered to pay full restitution to his two victims.

Following his incarceration, he will serve a 20-year probationary period, during which he will be restricted from working in a sales position or financial field, with the exception of retail, and is forbidden from having unsupervised contact with anyone over the age of 65.

In addition, his insurance agent license was revoked by the department and he has been permanently barred from working in the insurance industry.

INSURANCEJOURNAL.COM

Idea Exchange

Commentary

Challenge to NCCI Rating Process Could be Significant for Florida

By Justin R. Parafinczuk

A

Florida court’s review of workers’ compensation rating procedures by the National Council of Compensation Insurance (NCCI) could have a substantial impact on the state.

The case, Fee v. Florida Office of Insurance Regulation, NCCI, is currently being weighed by the Florida First District Court of Appeal. The court’s decision on whether to overturn a lower court’s ruling that NCCI and OIR violated Florida’s Sunshine Law in establishing a 14.5 percent rate increase will affect all Floridians.

The reality is that workers’ compensation insurance rates impact all Florida residents, not just businesses. The cost of large rate increases is spread around internally by insurance carriers, which affects the cost of all lines of insurance they offer. Further, companies looking to grow by hiring new employees will have to think twice because of their higher premiums, and unemployed Floridians, likewise, will find fewer job openings.

The outcome of the Fee case will most likely do little INSURANCEJOURNAL.COM

to change the aforementioned negative impact of the rate hike. If the court holds that NCCI should be forced to disclose how its single actuary, Jay Rosen, calculated the increase, there may be some objection to his methodology. However, the rate increase will remain in place until OIR’s next review.

The only possible mechanism to immediately challenge the rate increase would be another lawsuit, asserting a violation of the Florida Constitution. A constitutional challenge could gain traction in the Florida courts because there is an argument that one, solitary actuary should not have the unchecked power to set the workers’ comp rates for the entire state.

Another potential outcome from the case could have much more drastic implications for Floridians. Fee’s allegation is that NCCI and OIR colluded in secret to settle on the 14.5 percent increase. Should Fee, through Sunshine Law, gain access to information that proves his theory, there could be a litany of serious consequences. The first being any decisions made by NCCI and OIR regarding rates will be subject to much more public scrutiny, and probably even more government scrutiny.

The second, and very likely result, is that businesses that have purchased workers’ comp insurance or had their rates increased during this period could bring a class action against NCCI and the State of Florida to seek return of the overpayment it is determined was made as a result of the

alleged collusion between NCCI and OIR. As to the merits of Fee’s case, he makes a compelling argument that Sunshine Laws apply to NCCI. The Sunshine Laws require an open meeting when a “committee of a recognized rating organization with responsibility for workers’ [comp] and employer’s liability insurance rates in this state meets to discuss the necessity for, or a request for, Florida rate increases or decreases.”

NCCI has hinged almost its entire argument that the word “committee” means more than one person. Therefore, because Rosen is only one person, he cannot constitute a committee. This position by NCCI is awfully tenuous, and borders on intentionally flouting the intent of the Sunshine Law. Is it possible that NCCI specifically chose to have only one person calculate the rate increase, so as not to form a “committee,” and avoid the obligation of public disclosure mandated by Sunshine Laws? That question would likely be answered in resulting civil suits, should Fee prevail on appeal. It is almost a certainty that the appellate court, regardless of its rulings in past Sunshine Law cases, will take issue with the hairsplitting that NCCI is engaging in with this argument.

If the rate hike were found to be determined by improper analysis, it’s possible that a panel of three or four actuaries

could agree that the hike is warranted. Therefore, no harm, no foul. But, nationwide the cost of workers’ comp claims has only increased slightly from 2016. So, either Florida is an anomaly, as many analysts would agree, or the 14.5 percent increase is way out of line with the national trend.

Based on a review of the initial brief, answer brief, and the reply brief, and observation of the oral arguments in the Fee appeal, it is difficult to predict whether he will prevail and Sunshine Laws will apply to NCCI. In my view, NCCI is a private company, but it is doing business with a public agency, OIR, and that alone should subject their correspondence and anything else they relied on to determine the rates to Sunshine Laws. The public interest is too great here for a case to hinge on NCCI’s definition of what a “committee” is.

Finally, the general rule in all appeals is that the appellant, in this case NCCI, has an uphill battle to convince the appellate court that the trial court was wrong. However, when the issue on appeal is an issue of interpretation of law, as we have here, the appellate court has much greater discretion to reverse the trial court.

Justin R. Parafinczuk, Esq. is a Florida Bar Board Certified Civil Trial Attorney and partner with the firm Koch Parafinczuk & Wolf, P.A. He is based in Fort Lauderdale, Fla., and can be reached at Parafinczuk@kpwlaw.com.

APRIL 17, 2017 FOCUS ON FLORIDA | INSURANCE JOURNAL | 13

FOCUS ON FLORIDA

| News & Markets

1347 Property Insurance Holdings to Expand Into Florida Homeowners Market

By Amy O’Connor

S

pecialty property and casualty insurance holding company 1347 Property Insurance Holdings, Inc., (PIH), which currently offers insurance to individual and commercial customers in Louisiana and Texas through its wholly-owned subsidiary, Maison Insurance Co., has announced plans to write business in Florida.

The company said March 7 that Maison Insurance Co. has secured a Certificate of Authority from the Florida Office of Insurance Regulation to write allied lines, homeowners multi-peril, and mobile home multi-peril in the state. The authority will allow the company to write homeowners and wind-only coverage.

“Our direct writing activities in Florida will be targeted based on market conditions, and we may pursue approval for ‘take-out business’ should we determine profitable opportunities exist,” the company said in its March 7 statement. “Other

states with coastal exposure will be evaluated from time to time for their fit with the company’s strategy.”

The move comes as 1347 Property Insurance completes its strategic and capital allocation review process that it began last October, in which the company determined that Florida should form a “key part of PIH’s strategic plan.”

“As a specialty insurer, [PIH] expects that its underwriting results and return on deployed capital should be above industry average based on a focused strategy that responds to certain defined markets and their dynamics. We believe that exposure to catastrophic events creates opportunities for superior returns in select markets depending on conditions at the time,” it said. “We expect to write business in targeted property insurance markets, often in underserved areas, where we believe our expertise and innovation will enable us to capture this opportunity.”

On PIH’s fourth quarter and year-end results conference call, held on March 16,

14 | INSURANCE JOURNAL | FOCUS ON FLORIDA APRIL 17, 2017

CEO Doug Raucy said that the company spent considerable time evaluating and studying the Florida market and sees a lot of potential in the state.

“Our management team has extensive experience in the Florida market,” Raucy said. “With particular experience extending with niche markets there, both in terms of product and geography, we think this will enable us to develop and market insurance products that will benefit home owners, while also allowing independent agents another tool, which we are taking further to their customer relationships benefitting PIH as well.”

Raucy added that it considered different approaches in its entrance into Florida, including “several opportunities to enter the state via an acquisition.” But it ultimately decided to build its business organically.

“That way, we know each policy we write inside and out, which allows us to observe the maximum control on our risk,” Raucy said.

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He acknowledged the challenges facing Florida homeowners companies in the last couple of years, alluding to the state’s ongoing assignment of benefits (AOB) abuse that has threatened Florida’s property insurance market, but said the company is prepared to handle these challenges.

“We are very familiar with these issues and anticipate unique opportunities to develop in that market,” he said. “Starting with a clean slate will position us well for success as we have no legacy issues in which to contend.”

But he added the Florida expansion will be “methodical” and keep with the company’s “risk adverse style.” He cautioned investors on the call to “gauge their expectations accordingly, as we will not begin to see any impact on our financials until 2018.”

“It will take some time to develop our insurance products and build our agent network…This means that the earliest we’ll start writing policies is likely to be late in 2017,” he said.

The company is not a complete stranger to the state – it is currently based in Tampa. Still, Raucy said it is being opportunistic and monitoring the right moments to “enter at the right spots.”

PIH is also evaluating other states for future expansion and has re-confirmed that certain Louisiana and Texas markets will remain in its book of business.

In the personnel department, the company announced that Gordon Pratt had retired from the the Board of Directors and Larry G. Swets, Jr., was elected as the new chairman.

Other take-aways from the company’s strategic review included refining its focus as a specialty insurer in areas with exposure to catastrophic events; and the consideration of alternative investments in support of return on equity objectives.

“Our review also leads us to conclude that our investment activities, an important aspect of our strategy, should evolve to include alternative opportunities, all of which will be overseen by the company’s Investment Committee,” PIH said in its statement. “This committee will operate

with the company’s expected return on equity target in mind, particularly at times where the company’s capital exceeds the amount necessary to support insurance underwriting activities.”

The company finished 2016 with $51.3 million in written gross premiums, a 17

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percent increase from $43.9 million the year before. Its in-force policy count as of Dec. 31, 2016 was up 19 percent at 33,800 policies compared to 2015 when it ended the year with 28,400 policies. Net premiums earned were $30.4 million, a 17.4 percent increase from $25.9 million in 2015.

3/29/17 11:22 AM

APRIL 17, 2017 FOCUS ON FLORIDA | INSURANCE JOURNAL | 15

FOCUS ON FLORIDA

| News & Markets

Florida Workers’ Comp Reform Battle Far From Over

By Amy O’Connor

S

everal bills addressing changes to Florida’s workers’ compensation system were filed this legislative session in response to court decisions from the state’s high court in 2016, but it remains to be seen which, if any, will make it through.

So far, the frontrunners to amend decisions by the Florida Supreme Court that found aspects of the Florida Workers’ Comp Act unconstitutional are two bills – House Bill 7085 and Senate Bill 1582 – that seek to reform the state’s workers’ comp system.

HB7085, sponsored by Rep. Danny Burgess, extends the timeframe in which employees may receive certain workers’ compensation benefits from 104 weeks to 260 weeks and the timeframe for when a carrier must notify the treating doctor of certain requirements. It also revises provisions relating to retainer agreements and the awarding of attorney fees.

The industry has voiced the most support for this bill since an amendment was added by the House Commerce Committee April 6 capping attorneys’ fees at $150 an hour on approval by a judge of compensation claims (the bill originally had them capped at $250 an hour).

The Property Casualty Insurers Association of America (PCI) said the bill as amended, “would address decisions by the Florida Supreme Court rulings that could cause workers compensation rates to increase by 14.5 percent in

the state, costing Florida job creators more than $1.5 billion.”

Trey Gillespie, senior workers’ compensation director for PCI, said the most glaring difference between the House and Senate bills are the attorney fee provisions.

Gillespie said another aspect of SB1582, proposed by Sen. Rob Bradley, that concerns the industry is a cap placed on expenses for administrative costs of policies, like attorneys’ fees and claims adjustment expenses.

Gillespie said that the Senate bill stipulates that an insurer’s defense and cost containment expenses that exceed 15 percent for workers’ comp would be considered “excessive.” The insurer could be required to issue refunds to policyholders if it goes over that threshold.

Gillespie said that stipulation is “not a very workable way of addressing the litigious nature of the Florida Workers’ Comp Act.” “It puts policyholders at risk, even though it promises a rebate,” he said.

“It interferes with the ability of the insurance company to provide a defense for their policyholders.”

All that said, Gillespie said both bills are very fluid and it is “impossible to predict what the final versions of these bills will look like,” or, if they will be passed at all.

“There is the possibility of no significant workers’ comp reform in this session,” Gillespie said. “If that is the case, not all is lost because there has been such a good and open discussion of issues that I think it would key things up pretty well for the next legislative session.”

In the meantime, Florida businesses still have a 14.5 percent rate increase to contend with and the possibility of additional rate increases next year.

Gillespie added, however, that if reforms are eventually passed the rate increases could be rolled back to some degree and instill a more stable environment for businesses.

“Florida workers comp will continue to draw a lot of attention on the business and insurance community, as such reforms could be enacted to give relief, but the devil is always in the details,” he said. “If there’s not effective reform passed in 2017 then I am sure the business community will look at proposing reforms in 2018.”

Florida to Help Foster Children Get Drivers’ Licenses, Insurance

C

hildren in Florida foster care will get help obtaining a driver’s license and auto insurance under a bill awaiting the signature of Gov. Rick Scott.

The House unanimously passed the

bill in early April that would make permanent a pilot program that began in 2014. The program reimburses foster parents or children for driver’s education, license fees and insurance.

The idea is to help children in state

16 | INSURANCE JOURNAL | FOCUS ON FLORIDA APRIL 17, 2017

care become more independent. The cost of the program is $800,000.

Republican Rep. Jennifer Sullivan sponsored the bill. She said among all teenagers, 60 percent of those eligible receive drivers’ licenses, but only 3 percent of eligible foster children obtain licenses.

Copyright 2017 Associated Press.

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News & Markets | continued from page 20

“They’re just trying to lowball that so that they can make more money at the end of the year.” That’s unfortunate.

We, as regulators, strive to do our best to make sure that if there’s a perception that that’s happening, that we are implementing as many of our resources as we can to make sure that we’re either addressing it if it is happening or telling the story if it’s not happening.

IJ: I’m sure you are aware on some level

that the insurance industry has a bit of a talent crisis. What would be your advice to the industry as a young person who started out as an agent and moved on to a different role? What was your experience?

What advice would you give the industry in improving their ability to attract?

Altmaier: I think that giving opportunities to your midlevel, entrylevel positions goes a long way in making them

feel part of the team and giving them the appetite to further professionally develop.

I had a lot of opportunities when I joined [OIR] to work on various projects that made me really feel as if I were part of the team and that I was making a difference, not only in our organization but in our state, as a whole. That gave me a sense of drive to continue to develop professionally and to look for the next step and to determine how I could be of better use to the state and to [OIR].

I’ve kept that in mind as we have projects that come up at [OIR] in looking for our talented midlevel and entrylevel employees and making sure that they don’t feel as if they’re just going through the day-to-day operations of reviews and analysis and things of that nature.

But giving them challenging work

FOCUS ON FLORIDA

and meaningful work so that they stay engaged.

We spend time at the local universities, introducing folks to insurance.

Florida State has a great risk management and insurance program. We get a lot of great talent from FAMU, the other local university. Tapping into that can go a long way in introducing folks into the insurance industry.

I know that before I became involved with the insurance industry, I didn’t realize how complex the industry was.

I didn’t realize all the various ways you can be involved in the insurance industry. There’s legal professionals, accounting professionals, actuarial professionals, government professionals, media professionals, all involved in the insurance industry.

There’s so much opportunity. Making sure that message gets out is extraordinarily important.

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APRIL 17, 2017 FOCUS ON FLORIDA | INSURANCE JOURNAL | 17

Idea Exchange

E&O

Communication With Clients Key to Avoiding Professional Liability Claims

By Craig Hudson

A

recent case before the Florida Fourth District Court of Appeal illustrates the potential pitfalls that can occur when there is a breakdown of communication between agents and clients, and serves as a reminder of the important steps brokers should take to avoid a malpractice claim by their clients.

In this case (Gelsomino v. Ace American Insurance Company et al, Nov. 9, 2016), an agent’s contracting client, T & T Contractors of Jacksonville, Fla., was expanding its domestic business to the Bahamas and needed general liability and workers’ compensation coverage for its operations there.

Additionally, in order to conduct its business activities in the Bahamas, the company needed to create a separate Bahamas corporation, which the client did and named it T & T Services.

At the request of his client, the agent obtained an international insurance package policy which would have included all of the appropriate coverages.

Apparently, because the agent did not understand that all business had to be done in the name of the Bahamas company, the certificate of insurance was issued to the Bahamas company, but the actual named insured in the policy was the U.S. entity.

An employee of the Bahamas company, who incidentally was the brother of the owner, was severely injured while working in the Bahamas. The employee’s claim for workers’ compensation benefits was denied by the carrier because the named insured was the U.S. company (T & T Contractors) and not the Bahamas company (T & T Services) that he was working for in the Bahamas at the time of the accident.

The Fourth District Court of Appeal reinstated an earlier jury verdict that found the broker to be 35 percent at fault for the company suffering lost earnings of $73,250; past medical expenses of $10,000; and future medical expenses of $151,370. The jury found the broker negligent for failing to procure insurance, as the policy was obtained in the name of the wrong legal entity, and was a “legal cause of the plaintiff’s loss, injury or damage.”

The Court of Appeal’s decision is undoubtedly interesting to attorneys defending insurance agents because it discusses issues of an agent’s duty of care, causation, proper measure of damages and compara-

18 | INSURANCE JOURNAL | FOCUS ON FLORIDA APRIL 17, 2017

tive negligence of the client in failing to accurately describe his business operations. For insurance agents, this case demonstrates the importance of communication and understanding between the insured and the agency to avoid future malpractice claims.

Whenever an agent is writing business for a new or existing client, the most important starting point is listening.

Agents need to make sure to clearly communicate the type of insurance and the amount of coverage the client desires.

When multiple business entities are involved, one should be certain which company is being insured even if a related company is paying the premium.

Once the agent has the order, it is important to review the type of insurance, coverage limits, deductibles and any exclusions to coverage contained in the policy. If an application is being completed, send it to the client with an email or cover letter telling the client to notify the agency or agent if the application or requested coverage is inaccurate and require them to return the signed application. If it is the responsibility of the agent

to send the client the policy, encourage the client to read the policy and call if they have any questions or concerns.

Try to avoid any commentary about the policy. For instance, if the client is being moved to a different insurance company, do not represent that the replacement policy is the same as or just as good as the prior policy unless there has been confirmation from the new carrier that the policy is indeed exactly the same as the previous one.

Perhaps, in the referenced case, had the broker and the client done a better job communicating with one another as to what insurance was needed and that all operations in the Bahamas would be performed by the Bahamas company, the proper policy would have been procured.

Lastly, it was not clear in this case whether this particular broker had experience dealing with companies that were doing business in the Bahamas.

If the broker was inexperienced in this area, the broker should have referred the client to an agent who specialized in obtaining international business policies.

Craig Hudson is managing attorney of the Fort Lauderdale, Fla., office of Marshall Dennehey Warner Coleman & Goggin and the supervising attorney for the firm’s Professional Liability Practice group in Florida. He can be reached at cshudson@mdwcg.com.

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