Small insurance firms race to Florida

Bradenton Herald–July 16, 2008

By BRIAN NEILL

Michael Gold says he got tired of seeing Florida homeowners overcharged for their property insurance.

After all, Gold says, his own insurance policy had jumped 400 percent.

So Gold pulled some investors together and in March received approval to begin writing homeowners policies under the business name People’s Trust Homeowner’s Insurance, based in Boca Raton.

The company currently has 2,500 policies and Gold says he expects by October to be writing as many as 2,000 new policies each week.

In the two years since legislators made affordable, competitive-priced insurance a priority, a total of 31 new insurers have entered the state to compete against larger insurers like Allstate and State Farm, who have continued to cut back on policies and new business.

That’s given consumers more choice, but has caused some to wonder how they’ll hold up compared to larger insurers should a major storm hit Florida.

Part of Gold’s approach in offering affordable rates to customers is doing away with agents.

"People are flocking to us because we’re saving them thousands of dollars," Gold said. "A good chunk of that went to paying commissions to agents," Gold said. "We can offer at least a 20 percent savings just because of that one factor."

Sam Miller, executive vice president of the Florida Insurance Council, said the state’s insurance environment has vastly improved because of new companies entering the marketplace.

Since January of 2006, new companies have contributed nearly $4 billion in underwriting funds to the Florida market, according to the Florida Office of Insurance Regulation.

Some of those companies have also taken the burden off state-created Citizens Property Insurance Corp. by assuming some of its policies.

Citizens was a help to Florida homeowners after private insurers began dropping policies in the wake of the 2004-2005 storm years. But the company is now the state’s largest insurer and its officials have acknowledged that its rates are not adequate to cover potential damages from a major storm.

"We desperately need other private carriers to come," Miller said. "Because if we don’t have them, Citizens is the only other alternative. I know that based on what we’ve been hearing, a lot of these companies are, in fact, selling cheaper than Citizens and they are pulling customers away from Citizens. Primarily it’s these new companies that are writing new business, period. And we’re hearing from a lot of agents around the state that homeowners are getting better rates from these smaller businesses."

But Jeff Grady, president and chief executive officer of the Florida Office of Insurance Agents, wonders how all these new companies will fare in the years to come.

"The concern is, everyone knows Citizens’ own actuaries testified under oath that they are woefully underpriced," Grady said. "Many of these companies were started by taking out policies from Citizens and the OIR requires that those companies only take policies at Citizens’ rates or below. Citizens says they’re underpriced and these companies are taking these policies at Citizens’ rates or below. What’s going to happen when the wind blows?"

Gold’s company does not plan to take out any policies from Citizens and manages capital risk by being selective, he said.

Though People’s Trust Homeowner’s Insurance doesn’t rule out covering older homes, they have to have upgraded roofs, plumbing and wiring. Gold said his company doesn’t take on homes worth more than $1 million "simply because we don’t think it is prudent to concentrate that much risk in any one property."

Miami-based Northern Capital is also keeping risks in check, said President and Chief Executive Officer Wayne Fletcher.

The company started in 2006 with about $8 million in reserve capital. It now has about 40,000 policies and has generated $65 million in premiums, Fletcher said.

"We have priced our product at basically what we feel is an actuarially sound rate," Fletcher said. "We don’t look at other companies and try to compete with them. Our target market is $400,000 or 500,000 homes. We’ve kind of tailored our product toward that market niche as opposed to trying to write everything in the state, like other companies do."

In 2007, Northern Capital spun off another company, Landmark One, to take out up to 50,000 Citizens policies within an 18-month timeframe, Fletcher said.

The company has taken out about 20,000 policies so far, but doesn’t accept them in wholesale fashion in order to sidestep risk.

"We don’t take a policy out if the premium isn’t enough to cover our reinsurance costs," Fletcher said. "We’re taking a conservative approach and monitoring the environment, because we want to be here for the long-term." Florida ripe for new insurers