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Insurance
"We've had some difficult years in the recent past, but I expect 1997 will be the best year in a long time," says Sam Miller, vice president of the Florida Insurance Council, an industry public affairs and lobbying association. Miller says total premium volume for all lines of insurance should top $25 billion this year. Total employment is also expected to grow. As of September, the number of Floridians employed by the insurance industry was 114,300, up 1.2% from a year earlier.
Miller believes employment figures will continue to inch up as property insurers trickle back into the state. In February, the state-run Florida Residential Property and Casualty Joint Underwriting Association (JUA) will complete the transfer of 487,000 homeowners policies to 14 private insurance companies. The success of the so-called "takeout" is expected to attract other insurers. "I don't think this means the crisis is over," says Leslie Chapman-Henderson, Allstate's government and community relations specialist for Florida, "but it's certainly a step in the right direction."
After Andrew, Allstate, State Farm and other property companies canceled policies and refused to write new business in many high-risk areas. Many smaller insurers, frustrated by the state's reluctance to raise rates and by the lack of reinsurance funds to cover hurricane losses, also pulled back. The JUA - a stopgap measure for homeowners unable to obtain private insurance - further fueled market flight by requiring private insurers to cover its losses if another major storm hit.
As a result, private insurance dried up and the JUA ballooned into the state's second largest insurer, with nearly 933,767 policyholders last October.
Faced with the same overexposure that plagued the major private insurers after Hurricane Andrew, the JUA embarked last year on an ambitious plan to shed as many as half of its policyholders by early 1997. Among the incentives to entice private companies back to the marketplace: a healthy rate increase, higher deductibles, a cash bonus plan, an exemption from JUA-shortfall assessments and creation of a $6.5 billion catastrophe fund to cushion industry losses.
Hurricane Andrew "still has the market shaking at its knees," says Florida Insurance Commissioner Bill Nelson, "but I think we've finally got the tools we need to fix things right."
Some Florida entrepreneurs have found the state's incentive package too good to pass up. Last summer, veteran Tampa insurance agent Bill Poe Jr. started a family-owned company, Southern Family Insurance, that negotiated for 74,200 JUA policies. The deal should be completed by early 1997. The state will pay his company a bonus of up to $100 for each policy it retains for three years. But the real incentive, explains Poe, was the promise of becoming a major player in the industry overnight and with almost no start-up costs. "In one day, we go from having no policies to being one of the top ten insurance companies in the state of Florida," he says.
Some industry observers say the takeout program is stimulating business in other lines of insurance. Companion Insurance of Columbia, South Carolina, for example, entered the Florida market in late 1996 by acquiring 35,652 JUA policies. By mid 1997, the company will begin marketing its workers' compensation products here.
"Florida is a big, fast-growing state, and we're looking at a lot more than just the JUA takeout," says Charley Potok, Companion's vice president and COO.
Commissioner Nelson says he's not surprised, citing the state's 1993 legislative reform package as the foundation of Florida's hotly competitive and profitable workers' compensation market. Prior to 1993, workers' compensation fraud, tort abuse and skyrocketing costs drove many private companies out of the Florida market. The availability crisis led to a proliferation of non-profit self-insurance funds (SIFs). Today, private insurers are rushing back into the marketplace. Many SIFs, which charge special assessments to their policyholders following any loss, are either closing shop or converting (under a state provision) to private insurance companies. The trend is expected to continue in 1997.
Robert S. Sprague, Florida's division manager for business underwriting at Liberty Mutual Insurance, says the reforms have been a boon to insurers, business customers and workers alike. "The end result is that costs are down for everyone, and better products and better services are being delivered." Sprague says the industry should expect even lower costs once the state-mandated managed care requirements kick in. As of January 1, all workers' compensation plans must be offered through a managed care arrangement.
But to pass some of the managed care savings on to the consumer, Nelson has ordered an 11% rate reduction, also effective January 1. While some industry sources say the rollback may be too much, too soon, others believe the lower rates will stimulate an already strong business line.
Nelson agrees. He says the business climate for workers' compensation insurance is so attractive that some large companies have proposed even greater rate reductions for 1997 in hopes of grabbing an "even greater slice of the pie." Some companies believe their slice can increase in 1997 in the form of a single insurance product that combines workers' compensation and traditional health insurance - the so-called 24-hour coverage. The Department of Insurance is conducting a pilot program to iron out the kinks before signing off and setting rates.
Chip Cole, president of Colesons Insurance, a full-service, independent agency in Miami, says 24-hour coverage will have the workers' compensation industry buzzing in 1997. "Fraud is still a major concern for employers, and this type of coverage holds the promise of helping to reduce that."
In contrast to the property and casualty and workers' compensation markets, Florida's life insurance sector remains staid and stable. Strong earnings remain as much a reflection of Wall Street's thunder as of Florida's 700-person-per-day population increase. 1997 is expected to be no different. In fact, Allstate, like many insurance companies operating in Florida, is trying to balance its higher-risk business with more low-risk services, like life. Chapman-Henderson says Allstate's strategy is to convince consumers that life insurance is a necessity nowadays, along with auto and health, and not just a luxury for the wealthy.
The Florida Insurance Council's Miller says the big story in 1997 for life insurers will be the emergence of long-term care insurance. Typically sold to the elderly, the insurance pays the cost of nursing home care and other chronic illness costs not normally covered by health insurance. Thanks to a new federal law, long-term care premiums are now tax deductible. "Obviously the demographics are right for this kind of product," says Miller. "I think this will be another very active market for insurance in Florida in 1997."
