The Florida Insurance Roundup from Lisa Miller & Associates

As hurricane season heats up, a growing number of properties located outside of FEMA-designated high-risk flood zones are actually flooding.  The problem is especially bad in the urban areas of America’s cities.  A national survey shows nearly 85% report experiencing urban flooding.  Insurance claims are on the rise, too. Host Lisa Miller, a former deputy insurance commissioner, talks with Sam Brody of Texas A&M University about his latest research and fellow scientist and resiliency expert Alec Bogdanoff on how we can protect more homes and businesses from flooding. Show Notes “Urban flooding is kind of this hidden danger among all flood risks in the United States,” according to Dr. Sam Brody of Texas A&M University and Director of the Center for Texas Beaches and Shores.  It occurs mostly in high growth areas, where development brings rain impervious surfaces, such as roads, driveways, and parking lots, which change the natural drainage pattern of the land.  “It’s bringing flood impacts to unexpected areas, sometimes miles outside of the FEMA-designated 100-year flood plain.” Brody’s joint study with the University of Maryland is titled, The Growing Threat of Urban Flooding: A National Challenge 2018.  The report revealed neighborhoods that were miles away from known flood risk zones but were surrounded by man-made barriers, such as roads, railroad tracks, and sound walls, referred to as “built environment barriers.” “These features of the built environment are creating the flood hazard and the associated impact.  They’re either exacerbating or entirely creating the situation of risk.  FEMA’s models, which are all based on stream channels, don’t account for these growing areas of risk and impact,” Brody said.   He noted that 2017’s Hurricane Harvey, one of the largest flood events in U.S. history, exposed a lot of underlying conditions of urban flooding, especially in Houston, Texas, the fourth largest city in the country. The study looked primarily at rainfall, but urban flooding can occur with tidal events, too, including high-tide or “sunny day” flooding, as seen in some South Florida communities.  Dr. Alec Bogdanoff is Principal Scientist and Co-Founder of Brizaga, a Fort Lauderdale, Florida based firm that assists businesses and communities in becoming more resilient to the effects of sea level rise and long-term environmental changes.  He said some storm water systems, which are meant for collecting and sending rainwater out to sea are instead becoming conduits for saltwater to back up into communities during this period of sea level rise. “The challenge comes if you end up with a high-tide sunny day flooding example and instead of it being a sunny day, it’s a rainy day.  You now have to wait for the tides to go down before that rainwater is going to go out,” Bogdanoff said. The study included a survey of more than 400 flood control professionals across all 50 states.  It found that 83% had experienced urban flooding and 46% indicated it has occurred in numerous or most areas.  “To me, the number one surprising result was that 85% of respondents experienced urban flooding outside of the FEMA Special Flood Hazard Area (SFHA), which means this is a problem and it’s growing nationwide,” said Brody.  “There are hotspots like Miami, Palm Beach, and Houston of urban flooding but this is something that needs to be addressed at all scales starting from the national level down to the local.” “This phenomenon is greatly affecting businesses and homes to the point that I think it should become a part of the conversation when it comes to insurance, to cover the losses that occur,” said host Lisa Miller.  She pointed to the flood protection gap, which is the d(continued)

The invisible coronavirus' crushing impact is being felt by businesses small and large – and on the insurance companies that insure those businesses.  But for those organizations with business interruption policies, do they have a valid insurance claim because the government shut them down and/or their business was "interrupted"?  There’s a lot of disagreement and finger-pointing and now Congress and individual states are poised to get involved in what may be a multi-billion dollar solution. Host Lisa Miller, a former deputy insurance commissioner, talks with insurance attorney and consultant John Burkholder and Kevin Miller, a seasoned independent property and casualty insurance adjuster, for answers and advice. Show Notes Insurance claims being filed on Business Interruption (BI) policies generally are focusing on two policy conditions: physical damage and/or civil authority.  A typical BI policy requires direct physical damage to a covered property by a covered cause, except as excluded.  About 90% of BI policies in the U.S. are reportedly on Insurance Service Office policy forms that specifically exclude viruses.   For the remaining policies, it’s also problematic. “In this case (with the coronavirus), we’re not really having something like a direct cause of loss, like a fire.  It’s really unique, in that the allegations being made across the country are that it’s because we have a virus in the air,” said John Burkholder, a consultant with Municipal Partners, a firm specializing in risk management for local governments.  Other insurance claims are being filed based on the civil authority clause in many policies, where a government authority has ordered a business to be closed.  “But in the traditional sense, the civil authority closing someone down has a limiting factor in almost all the policies.  Typically, you get up to three weeks and it’s where you cannot enter the property.  Here in most cases, you can enter the property,” said Burkholder, who is also an insurance attorney.  “The plaintiff’s bar, the claimants, are saying ‘Well we can’t enter because the civil authority says that there’re dangerous conditions in the area and because of the latency of this virus, we can’t get into our property and therefore it triggers business interruption income coverage.” In the meantime, insurance carriers are noting an increase in BI claims filings and investigating individual claims.  “That is part of the process of adjusting the claim,” said Kevin Miller, a Sarasota, Florida-based claims adjuster with Velocity Claims Administration, an independent adjusting firm.  “It’s about getting recorded statements from the policyholder, gathering documents, collecting information, and sending out reservation of rights letters.  Remember, you have to be concerned about avoiding unfair claims practices or bad faith.” Federal lawmakers and an increasing number of states are trying to legislate forced coverage, whether it’s in the policy or not.  The Business Interruption Insurance Coverage Act of 2020 in the U.S. House would make coverage available for BI losses “due to viral pandemics, forced closures of businesses, mandatory evacuations, and public safety power shut-offs,” per the draft bill.  And it voids any exclusion currently in place in an insurance policy.  At least eight states have their own bills – Florida is not one of them. “Business owners are suffering horribly,” said podcast host Lisa Miller, an insurance industry consultant.  “They are having difficulty accessing federal bailout funds in some cases, they’ve lost employees, and others are trying to get unemployment.  Many of these small businesses are looking for relief fro(continued)

In the six months since legislative reform, insurance companies report the number of Assignment of Benefit (AOB) claims in Florida are way down as are related lawsuits.  But they’re also seeing new strategies by contractors and their attorneys to work around the reforms. On the other side, contractors complain that without the “old AOB,” they’re getting shortchanged by insurance companies and homeowners for work they’ve already performed. Host Lisa Miller, a former deputy insurance commissioner, talks with Tanaz Salehi, an insurance defense attorney, and Mohammad Sherif, a plaintiff attorney, on the reform’s impact, its unintended consequences, and the potential solutions to ongoing claims problems. Show Notes An Assignment of Benefits (AOB) contract is a legal agreement between the contractor and homeowner, which allows the contractor to receive payments directly from insurance companies for work they perform at a policyholder’s home, without the homeowner having to pay money upfront.  In past years, unscrupulous vendors and their lawyers have taken advantage of the AOB to take control of a homeowner’s policy, then inflate the scope and cost of claims and sue the insurance company if it refuses to pay the inflated bills.  The Florida Legislature passed AOB reform in 2019 establishing tighter rules to stem the abuse and fraud, while putting more responsibilities on insurance companies, too. The reform, in part, revised Florida’s one-way attorney fee system, to make fee awards fairer.  “Insurance carriers have been filing motions to strike plaintiff attorney fees under the new law and have been prevailing in different counties across Florida,” said Salehi, managing shareholder with the Salehi Boyer Lavigne Lombana law firm in Miami.  She represents insurance companies. Both Salehi and Sherif agree that while the reform is working, as evidenced by the reduction in lawsuits, there are now issues with loopholes being exploited and unintended consequences for both sides. Host Miller noted reports of various workarounds to the reform law.  These include plaintiff attorneys making bulk deals with contractors to recommend the homeowner hire the attorney upfront to represent them at First Notice of Loss, to avoid using an AOB.  Also, there are reports of some restoration contractors splitting out “Emergency Services” they provide over several days, in order to get around the $3, 000 statutory limitation. “That ($3,000 cap) applies to emergency mitigation services,” said Salehi.  “That leaves a huge void for the roofing contractors that are now charging maybe ten to twenty times what it actually costs to replace the roof and submitting permits to the county for repairs for a fraction of what they’re charging the insurance companies.” Sherif said there are bad actors on both sides and lots of misinformation and confusion in the industry about what the reform did and the expectations going forward.  “There are front end desk adjusters at insurance companies who may be overzealous in applying the new law to hold vendors accountable,” said Sherif, a partner with Mubarak & Sherif, a Tampa law firm that focuses predominantly on helping homeowners in the Florida Panhandle with Hurricane Michael claims.  Both Sherif and Salehi agree the reform has had unintended consequences, too, especially for contractors who want to work but want to be guaranteed payment. “What I’m seeing is a lot of vendors who don’t want to use assignments anymore but who are having difficulty getting paid.  And the expectation has always been that ‘if I can’t go against the insurance company directly, what recourse am I left with as a contractor?’” said Sherif. Salehi, who also advises contractors, said there are some cases where (continued)

The Florida Legislature begins its 2020 session this Tuesday, January 14 amid growing concern about the state’s property insurance market.  Two carriers have failed in recent months.  Others are seeking rate increases of up to 30% to stem rising reinsurance and litigation costs.  Future financial ratings downgrades on some Florida domestic insurance companies are also likely. There are other insurance issues facing lawmakers as well, including automobile Assignment of Benefits (AOB) reform, bad faith, ongoing Hurricane Michael recovery, and a proposed change to the state building code.  There are also big ticket issues, such as education, the environment, and transportation, as part of a proposed $91.4 billion budget. Host Lisa Miller, a former deputy insurance commissioner, talks with Jim Saunders, Executive Editor of the News Service of Florida for a preview on what to expect this session. Show Notes Property Insurance Market – Saunders and Miller discussed the significance of rising reinsurance costs on the homeowners insurance market.  One domestic carrier, Edison Insurance of Boca Raton, is seeking a 21.8% statewide average rate increase in its homeowners multi-peril line.  Growing operating losses by some companies prompted state Senator Jeff Brandes (R-Pinellas) to describe Florida’s property insurance market as “rapidly declining” and as the most underreported issue going into the 2020 state legislative session. “This is something we really need to get up to speed on because it’s not just a business issue, it affects me, you, and everybody else who owns a home if nothing else,” Saunders told Miller.  He noted there are political ramifications of property insurance that are “far different” in South Florida than they are in inland and northern Florida. Automobile AOB Reform - The ongoing effort to reform growing AOB abuse in automobile windshield repair and replacements got off to a shaky start in the committee weeks leading to the session. “I tend to think that it’s a very live issue still,” said Saunders, despite the Senate Banking and Insurance Committee voting it down in December 2019.  “It’s not going to be a death-knell” to the reform efforts this session he said, noting the House has been very aggressive with AOB issues in the past.  Host Miller said it’s an issue needing to be addressed.  She shared a recent automobile AOB case involving a $64 windshield replacement.  The insurance company paid the standard $60 fee, but the $4 difference is now the subject of a lawsuit.  “It’s insane, make no mistake,” Miller said. Litigation & Bad Faith Reform – Saunders and Miller discussed the potential of Bad Faith law reform passing this session and the Governor’s reference to “factories of lawsuits” which are impeding the state’s economic development and prosperity.  “I didn’t get the sense Senate President Bill Galvano has much appetite at all for tort issues during a recent interview,” said Saunders, but “I don’t doubt the Governor and Florida House would be amenable to it.” Miller and Saunders also discussed the changing composition of the Florida Supreme Court in the past year and the expectation it will produce more favorable rulings for business and insurance interests.  “The old court was not friendly to insurance companies, as a diplomatic way to put it,” said Saunders. Miller brought up another property insurance company with a recent 28% rate increase request that attributed about 60% of that rate hike to growing legal expenses and fees. “One of the driving forces of those fees is the fee multiplier, approved by the previous state Supreme Court in 2017.  You see a judgment for $10,000 but you’ll see a fee(continued)

Two hundred Mexico Beach, Florida homes sitting beach block from the Gulf of Mexico, yet labeled X-Zone, FEMA’s lowest risk for flooding, were nearly wiped out by 2018’s Hurricane Michael.  Many of those residents had no flood insurance, complicating which damage from the Category 5 storm may or may not be covered by their homeowners insurance. In fact, 80% of flood losses in the Florida Panhandle were uninsured.  Yet, there’s just a trickle of greater demand for flood insurance post-storm.   Mexico Beach is fighting back with a tough new ordinance to counter the complacency created in residents by FEMA’s inaccurate and outdated maps.  Host Lisa Miller, a former deputy insurance commissioner, talks with two residents and an insurance agent about the impact of the new ordinance and how agents could be doing more to promote increasingly affordable flood coverage to their clients. Show Notes FEMA flood maps for Mexico Beach were last revised in 2009 but were based on a maximum storm surge of 10 feet.  Hurricane Michael produced a 15.5 foot storm surge plus 5-foot waves topping the surge, when it made landfall there on October 10, 2018.  The maps are used to identify which properties must have flood insurance to meet federal mortgage requirements and to set rates for those policies. Only one-third of Bay County, home to Mexico Beach and some of the worst damage in the 13-county impact zone, had National Flood Insurance Program (NFIP) policies.   Dina Bautista didn’t have flood insurance, but was one of the lucky ones.  Her Mexico Beach home was built on 12-foot pilings, the only one in her neighborhood.  “Every neighbor had water up to their roof,” she said. Yet despite the devastation, few Bay County residents have learned the lesson from Michael.  “I get the speech of ‘I've been in this house fifty years and never flooded’ quite a bit,” said Trey Hutt, owner of Hutt Insurance Agency in nearby Panama City.  “What these mostly elderly people don't get is that in those intervening 50 years, we've poured a lot of asphalt and concrete all around them, and that water is going somewhere.  And every neighbor is now building higher than that original home, and water always runs downhill.” Melissa Poage became concerned walking around her Valrico, Florida neighborhood after a recent hard rainstorm and noticing a waterline almost up to front doorsteps.  She said her insurance agent had never discussed purchasing flood insurance with her.  Her entire neighborhood is in an X-Zone, defined as being at risk of a 1 in 500 year flood event, which equates to a 0.2% chance every year of being flooded.  “So I bought flood insurance and it was very reasonably priced, it’s not expensive,” she said.  Hutt, a 25 year insurance veteran, said people don’t understand the true meaning of an X-Zone. “In our agency over the years, we’ve paid an awful lot more flood claims in X-Zones than we have in other zones.  An X-Zone does not equal ‘we will not flood’, it just means it’s less likely to flood than a Special Flood Hazard Area,” he said. Since Hurricane Opal in 1995, Hutt said his agency has aggressively offered flood policies with homeowners policies (which don’t cover most flood damage).   Those customers who choose not to purchase it have to sign a form acknowledging that.  “A flood rejection form has become a part of a lot of agencies’ tool kits,” he said. Both Hutt and Poage agree that it should be mandatory for insurance agents to “make the call” and offer customers flood insurance.  “I’m in favor of putting pressure on fellow agents to not only recommend flood insurance but we need to be able to prove that we’ve recommen(continued)

Recent disasters and the growing number of open insurance claims are creating renewed interest in an alternative to costly litigation in resolving claims disputes: mediation. While claim frequency is down, claim cost is way up – more than five times what it was 20 years ago.  Unnecessary and abusive litigation, including Assignment of Benefits (AOB) contracts, has contributed to growing claim cost in Florida. Host Lisa Miller, a former deputy insurance commissioner, sat down with Bruce Blitman, a Certified Mediator, Arbitrator, and Umpire, to learn what role mediation can play in successfully resolving these claims.   Show Notes Bruce Blitman was one of the first Florida Supreme Court certified circuit-civil mediators and has practiced since 1989.  He was an associate with several law firms prior to becoming a mediator.  “What really makes this process work is that you have all of the decision-makers present at the same time, at the same place, in the same room, much earlier on in the process before all of the time and the money and aggravation have been invested in the case.  So there’s a tremendous opportunity to resolve cases when you’re getting to them earlier on in the process,” said Blitman on the podcast. Mediation in Florida dates back 30 years.  Initial skepticism has given way to acceptance over the years, as lawyers on both sides have gotten more practiced in the mediation process, according to Blitman. “Lawyers found they were able to either put more money into their clients’ pockets at an earlier stage of the process or if they were insurance carrier representatives, they could save money by putting that money into the plaintiff's pocket without litigation costs,” Blitman said.  As a result, mediation has become a way to more efficiently move claims and for courts to move dockets. Host Lisa Miller was an insurance regulator during 1992’s Hurricane Andrew and the eight hurricanes in 2003-2004 that also struck Florida.  She suggested in the podcast that state officials initiate formal mediation centers sooner after major hurricanes strike.  “After a storm hits, we should consider having immediate mediation on the disputed amount of the claim,” said Miller. Florida law requires insurance companies to pay the undisputed amount of a claim to the policyholder within 90 days of receiving the claim.   Blitman said he’s a proponent as well of pre-lawsuit mitigation in such claims, a process that worked “very well” through a catastrophe mediation program set-up in Miami-Dade County following Hurricane Andrew. “There was an enormous amount of claims considered.  Not every case was resolved at mediation, but many of them were,” he shared.  “And by getting through that vast volume, people were able to get on with their lives much more quickly.”  Blitman also noted that many insurance companies became more proactive with mediation going forward. Miller referenced recent Florida legislative committee testimony that almost 40-cents of every dollar involved in a litigated paid claim goes to the plaintiff’s lawyer, not including court fees and the cost of defense counsel.  Blitman said such plaintiff contingency fees are typically only 20% to 25% if the claim doesn’t go to litigation.  Mediators, he said, are paid hourly, ranging from $150-700 per hour based on the complexity of the case. “If you can resolve a case within five hours of mediation, with both parties splitting the mediator’s fee, those fees are relatively small in comparison to what it would cost to litigate that case endlessly,” Blitman said.  He noted that the Florida Department of Financial Services has a roster of mediators available to help resolve different kinds of insurance claims disputes. The podcast also addresse(continued)

Not only was the Florida Building Code not fully effective in buildings damaged by Hurricane Michael, but neither were mitigation efforts designed to fortify our homes and businesses, according to a new FEMA report.  A team of building experts conducted an assessment of 350 structures affected by Michael’s Category 5 winds that reached upwards of 160 mph.  They paint a dismal result.  Buildings with wind retrofits, such as stronger windows or doors, suffered significant damage, even when those windows and doors held up.  The FEMA report notes people were injured as a result.  Expensive mitigation upgrades were for nothing.  And entire buildings, including multi-million dollar local government facilities, now have to be rebuilt from scratch. What happened?  Isn’t mitigation supposed to be a smart investment?  Host Lisa Miller, a former deputy insurance commissioner, asks her guests, including a former state legislator who had a hand in creating the Florida Building Code and the Panhandle’s wind standards, and two noted structural engineers. Show Notes This podcast is a follow-up in part, to the August 31, 2019 podcast Is Florida’s Building Code Protecting All of Us?  A University of Florida engineering school report found that the Florida Building Code wasn’t tough enough to withstand Michael’s Category 5 winds.  Not even in some newer structures, although they did fare better than those built before the 2002 code was enacted. But almost two-thirds of those buildings built after the code had some roof cover loss, according to the report. Although there is a single state building code, it has different wind standards depending on where you live.  The eastern Panhandle, where Hurricane Michael struck, has some of the weakest wind standards in the state, at 130 mph on the coast and 120 mph slightly inland.  Former state Senator Charlie Clary was involved in the creation of those wind standards in 2002.  “We tried to come up with some ways of helping, as we made the codes tougher and more uniform throughout the state, but still be somewhat affordable as they constructed these homes, because we were in a very intense growth mode at that time.  There had never been a Category 4 or greater hurricane to impact NW Florida at that time,” said Clary, who is founding principal with DAG Architects in Destin, Florida.  “We have to just learn lessons from Michael and make the changes necessary.” In Bay County, ground-zero for Michael, officials estimate nearly 75% of its 68,000 households were impacted.  The UF report noted roof and siding loss was common in both pre-code and post-code construction. Dr. Arn Womble, Research Engineer with the Insurance Institute for Business & Home Safety, said roofing products themselves need improvement and that aging effects seem to play a big role in how the roofs perform.   “We are frustrated as well as I think everybody in the industry in that the standard test for shingles – and we run them in our lab and they pass a certain test and then when they get subjected to reality out there in the field, they don’t perform like the laboratory test indicated that they might, so we’re realizing there’s a big disconnect there,” said Dr. Womble, who led a field survey team after Michael struck.  He added that siding products haven’t gotten as much attention as roofing, but need to going forward. The conversation moved to the newest set of post-Michael reports from FEMA.  Its recovery advisory Successfully Retrofitting Buildings for Wind Resistance, resulted from FEMA’s Mitigation Assessment Team survey of Hurricane Michael damage.  It found that buildings and homes with wind retrofits suffered significant damage—even in cases when the retrofit itself performed well&(continued)

As Hurricane Dorian bears down on Florida, two reports that examined damage from last fall’s Hurricane Michael have mixed reviews on building construction in Florida’s Panhandle.  While newer homes built after the 2002 Florida Building Code was enacted suffered less structural damage than older homes, the roof cover loss and siding damage was just as common in the newer structures.  In fact, almost two-thirds of those newer buildings built after the code went into effect had some roof loss from Michael’s high winds. While Florida is known for its tough building code, few know that the maximum wind standards of materials and methods in the code vary depending on which part of the state you live.  Miami-Dade County, where Hurricane Andrew struck in 1992, has the toughest wind standards.  But the Florida Panhandle, where Hurricane Michael’s Cat 5 winds struck in 2018, has among the weakest wind standards.  Why?  Just how vulnerable are homes throughout Florida?  And what can be done to strengthen them? Host Lisa Miller, a former deputy insurance commissioner asks noted television meteorologist and hurricane expert Bryan Norcross and Cindy Shaw, a forensic engineer with Haag Engineering Services. Show Notes Hurricane Michael struck the Panhandle as a Category 5 storm, the fourth in U.S. history, with maximum sustained winds of 160 mph and a 15-foot storm surge.  43 people died in the storm and its aftermath.  Total damages are estimated to climb to $25 billion. A University of Florida Engineering School report prepared for the Florida Building Commission examined both wind and storm surge damages from Hurricane Michael.  It found that roof cover loss was the most common type of structural failure, even with wind exposures below the building code’s threshold.  “Structural damage was predominantly experienced by older (pre-2002) structures, while newer structures generally experienced no more than roof cover and wall cladding loss.  However, roof cover and wall cladding damage was still commonly observed even in newer structures,” according to the report.  Almost two-thirds of buildings built after the code went into effect had some roof cover loss. Another report from the Structural Extreme Event Reconnaissance Network had similar findings. Although Florida is recognized as having the toughest building codes in the nation, they vary by wind standards, depending on the area of Florida.  In the Panhandle, where Michael struck, those wind standards are among the weakest in the state at 130 mph at the coast and 120 mph slightly inland.   In Miami-Dade and Broward Counties, the standards are the strongest at 180 mph at the coast and 170 mph inland. Cindy Shaw is a Senior Engineer and Southeast Regional Manager for Haag Engineering Services, a global forensic engineering and consulting firm.  In her review of the reports, Shaw said she noted improvement in homes built after the enactment of the 2002 Florida Building Code, but performance varied a lot, even among similar homes.   Homes built above code standards performed best.  “Finishing materials installations varied within a single residence and that led to wind damage.  Roofing that was to a higher code than a garage door led to vulnerabilities and failures in the overall structure,” said Shaw, a 20 year veteran of structural inspections. “It was tremendously frustrating to see the damage from Hurricane Michael because we lived this already,” said Bryan Norcross, Hurricane Specialist for WPLG-TV, Local 10 News in Miami.  He is known for his 23-hour on-air marathon during and after Hurricane Andrew struck South Florida.  Andrew was the last Cat-5 storm to hit Florida before Michael. “Something failed.  The roof might have been good, but the windows or the front door or th(continued)

The July 4 earthquakes that hit South Central California are a fresh reminder that California's population is the most susceptible in the country to major earthquakes.  So why is it, that earthquake insurance is no longer required as a condition for California mortgages?  Especially, when wind insurance is required throughout the state of Florida and elsewhere to protect against hurricane damage? While less frequent, earthquakes are unique in that the risk is constant and the potential damage can easily exceed those of hurricanes, wildfires, and flooding combined.  Is it time to readjust our public policies - and our insurance policies - to adequately cover all our 21st century risks?   Host Lisa Miller, a former deputy insurance commissioner asks John Rollins, Consulting Actuary for Milliman and Jim Wilkinson, Jr., Executive Director of the Central United States Earthquake Consortium (CUSEC). Show Notes Losses from the early July earthquakes in and around Ridgecrest, California are estimated to reach $200 million of which insurance companies will likely cover only about a fifth, according to Karen Clark & Company.  Less than 20% of property owners affected by the magnitude 7.1 quake and the 6.4 magnitude foreshock had earthquake insurance. The event has rekindled discussion on earthquakes in California.  If a similar quake had occurred in a more populated area, the costs could have been much worse.  California homeowners policies don’t cover earthquake damage.  According to global consulting and actuarial firm Milliman, the lack of protection for 90% of the state’s 14 million dwellings poses a risk to the largest assets of many state residents: their homes. So why is earthquake insurance no longer required as a condition for California mortgages?  GSE’s (Government-Sponsored Enterprises, a type of financial services corporation such as FannieMae and Freddie Mac) servicing guidelines don’t require it, so private lenders who originate and sell mortgages to the GSE’s don’t either.  Contrast this to windstorm insurance, which is required everywhere as a condition for a mortgage, as dictated by the same GSEs. John Rollins, Consulting Actuary for Milliman, explained that while different regions in the U.S. are predominantly impacted by a single peril, such as California with earthquakes and Florida with hurricanes, Milliman’s research indicates that all of the catastrophic perils from earthquakes, wildfires, floods, and hurricanes, actually contribute significantly a measureable amount to the total amount of what an actuarially-sound homeowners premium should be for the true risk of these disasters underlying each policy across the U.S. “Each one of those types of disasters contributes potentially hundreds of dollars to the quote -‘fair’ – or right insurance premium as actuaries would define it,” said Rollins.  “So that runs up against a policy question, which is, if you have significant, roughly equal risk from hurricanes, floods, wildfires, and earthquakes across the country, why aren’t the guidelines for determining eligibility of mortgages for Fannie Mae and Freddie Mac… and their concomitant insurance servicing requirements exactly the same across the country?  We don’t have all the answers as to why that it, but we do know that a pure clinical look at the numbers would indicate that there’s really no reason to favor one peril over the other,” Rollins said. The Central United States Earthquake Consortium (CUSEC) is comprised of the eight states that would be most impacted by quakes along the New Madrid earthquake fault line, which runs along the Mississippi River, in partnership with FEMA.  CUSEC examines the earthquake threat and ways to encourage mitigation and reduce losses.  Yet, earthquake insurance isn’t popu(continued)

Florida’s seven year wait for meaningful reform of Assignment of Benefits (AOB) abuse is over.   The Florida Legislature has passed a measure to level the playing field for consumers and reduce the skyrocketing rates of litigation filed by vendors against insurance companies, driving double-digit rate increases. Hailed as a “wake-up call for the bad actors” exploiting homeowners and the insurance industry, what exactly does the reform do and what doesn’t it do?  What impact is it expected to have with more than half of Florida’s insurance litigation today now involving an AOB?  And what creative alternatives and other shenanigans still exist for further scams? Host Lisa Miller, a former deputy insurance commissioner, talks with insurance defense attorney Kimberly Salmon of Groelle & Salmon, and Paul Handerhan of the Florida Association for Insurance Reform. Show Notes An Assignment of Benefits (AOB) agreement is a legal contract that allows repair vendors to receive payments directly from insurance companies for work they perform at a policyholder’s home, without the homeowner having to pay money upfront. While it sounds good, unfortunately in the past seven years in Florida, unscrupulous vendors and their lawyers have taken advantage of AOB to take control of a homeowner’s policy, then inflate the scope and cost of claims and sue the insurance company if it refuses to pay the inflated bills.  The number of property insurance AOB lawsuits rose 900% from 2008-2018. In late April 2019, the Florida Legislature passed HB 7065 which puts new requirements on assignees (contractors and other vendors) and insurance companies.  An AOB must now provide the following: Policyholder can rescind the AOB within 14 days for any reason without penalty but must pay for work performed Policyholder can rescind the AOB within 30 days if work has not commenced within 30 days of stated start date Clear notice of consumer rights and policyholder responsibilities involved in signing an AOB Policyholder held harmless where the vendor is prohibited from charging any “fees”, excepting policy deductible Within 3 business days of the AOB execution, the vendor must provide the AOB to the insurance company Contain a written, itemized, per-unit cost estimate of services Work performed must conform with current industry standards Vendor must "stand in the shoes" of the policyholder, including filing proof of loss, producing records, and submitting to examinations under oath prior to filing suit Insurer must respond to the vendor’s notice within 10 days Emergency services would be limited to $3,000 or 1% of the Coverage A policy limit The bill also allows an insurance company to offer a policy prohibiting assignment in an effort to lower homeowners policy premiums, which have grown by double-digits. Paul Handerhan, Senior Vice President of Public Policy for the Florida Association for Insurance Reform, noted the significant consumer protections in the bill, especially a homeowners ability to get out of an AOB contract. “That’s a dramatic improvement on the way assignments have worked in the past prior to this bill.  Literally, there was no statutory requirement for any rescission period.  If a policyholder, in the middle of the night with an emergency service, signed an AOB, they would effectively have no way of getting out of the contract,” said Handerhan, who is a practicing public adjuster.  The bill also revises the current one-way attorney fee system which was seen as incentivizing lawsuits and institutes a new formula, based on the disputed amount: the difference between the assignee’s presuit settlement demand and the insurer’s pre-suit settlement offer.  If the prevailing judgment is: Less than 25% of the disputed amount, then the insurer is entitled to reasonable atto(continued)

For the seventh time in as many years, the Florida Legislature this spring of 2019 is considering bills to reform abuses of Assignment of Benefits (AOB) insurance contracts between vendors and property owners.   AOBs allow contractors to take control of a homeowner’s insurance policy and bill their insurance company directly for repair work – sometimes fraudulently inflating the scope and cost of the claim. When the insurance company refuses to pay or underpays the claim, the vendor sues.  The latest figures show the number of AOB lawsuits continue to rise in Florida, up 18% in 2018 from the year prior – and up 900% from 2008.  The costly lawsuits remain concentrated within a disproportionately small number of lawyers and firms, utilizing a loophole in the state’s one-way attorney fees law. Host Lisa Miller, a former deputy insurance commissioner, talks with Wesley Todd, CEO of CaseGlide, a claims litigation management firm whose analysis shows AOB abuse is costing each of Florida’s six million property owners $400 a year in added premiums. Show Notes Wesley Todd and his firm CaseGlide are managing litigation for 100,000+ claims on behalf of its insurance company clients.  He said his analysis has revealed startling statistics that should be of concern to everyone in Florida.  AOB litigation on average is costing each insurance company doing business in Florida $50 million a year which equates to about $400 for each of Florida’s six million property insurance policyholders.  Looked at another way: “What if this law and the legislators and lawyers behind this current law were giving to a small set of 10-15 trial lawyers $1 billion per year by lack of reform?” Todd said. Florida’s one-way attorney fees statute is driving the AOB abuse and the general increase in insurance litigation.  It allows policyholders to recover legal costs if the insurer has been shown in court to have underpaid the claim in any amount – even by just one-dollar.  Past efforts in the legislature to clarify that only a named policyholder would be entitled to file suit have all failed. “This is a significant problem in Florida and it isn’t complicated.  Insurers are going to be get paid through their premiums and have had to raise rates to do so,” Todd said. He points out the arguments that supporters of the current AOB and one-way attorney laws are using – that any changes will hurt consumer protection and prevent the little guy from going against the big insurance company – were the same arguments used against sinkhole reform in Florida, which passed in 2011.   None of those dire predictions came true nor will they if meaningful AOB reform passes this session, he said. The CaseGlide Index is a real-time index containing aggregate industry litigation data that previously hasn’t existed in one database.  It can also serve as a central foundation for rating oversight by regulators, rating agencies, and the reinsurance marketplace.  Todd says part of the focus is to provide evidence required to help the Florida Legislature tackle the AOB problem. Todd agreed with host Lisa Miller that AOB abuse isn’t an issue the courts can totally resolve.  While the current case before the Florida Supreme Court (Restoration 1 vs. Ark Royal Insurance Company) will be helpful in stemming some AOB and litigation abuse, “we still need to address the one-way attorney fee statute,” Todd noted.  “They are going to find one way to make it where they recover one more dollar (above the original insurance company settlement offer)…and when they find that, they’re going to get their $300,000 in plaintiff attorney bills with their contingency fee.”  He and Miller also discussed Florida’s Bad Faith Law, something Miller pointed out is ad(continued)

The Florida Legislature convenes its 2019 session next Tuesday, March 5.  The big insurance issue: the growing cost of property insurance claims litigation.  But there are also bills that would change Florida’s no-fault auto insurance and more than 200 bills funding much-needed Hurricane Michael relief to the 14 Panhandle counties still struggling with debris cleanup and recovery. But there are other issues of interest lawmakers are addressing, including whether to allow smokeable medical marijuana and how to address ongoing water quality issues.  Host Lisa Miller, a former deputy insurance commissioner, talks with Jim Saunders, Executive Editor of the News Service of Florida for a preview on what to expect this session. Show Notes: Calling efforts at Assignment of Benefits (AOB) reform “the main event” for insurance interests before the Florida legislature this year, Jim Saunders of the News Service of Florida said the key component is attorney fees in claims disputes.  He and host Lisa Miller discussed the behind-the-scenes effort by leaders of the Florida Senate’s Banking and Insurance Committee and the Judiciary Committee to rework the current bill (SB 122).  The bill seeks to limit one-way attorney fees to named insureds and beneficiaries only – not contractors and their attorneys operating under an AOB agreement with the insured (policyholder).  A revised bill is expected as soon as this coming week (March 4, 2019). Another major issue this session is Hurricane Michael relief and recovery funding.   Saunders called Michael a “wildcard issue” in the AOB reform debate.  Hundreds of millions of dollars of appropriations bills have been filed to provide help to the 14 mostly rural Panhandle counties impacted by the October 10, 2018 Category 4 hurricane.   That includes Florida’s devastated timber industry, whose losses are estimated at $1.3 billion. Other topics discussed include medical marijuana and bills that would allow patients to use a smokeable form of it, as well as refined regulation on its production; algae blooms and water quality in Florida; and efforts to further encourage the testing and use of automated vehicles in the Sunshine State.  Saunders also provided details of Governor DeSantis’ major transportation plan, geared in part to increase highway capacity for evacuations of residents in future hurricanes and other disasters. Links and Resources Mentioned in This Episode: Lisa Miller & Associates Assignment of Benefits (AOB) webpage News Service of Florida Bill Watch of February 18, 2019 (LMA Newsletter) AOB Reform bill  SB 122 is scheduled to be discussed on Monday, March 4, 2019 during the 3:30 pm ET meeting of the Florida Senate Banking and Insurance Committee.  To watch the meeting live or later, click on The Florida Channel and search by date and committee. Hurricane Michael Coverage & Photos (LMA Newsletter) ** The Listener Call-In Line for your recorded questions and comments to air in future episodes is 850-388-8002 or you may send email to LisaMiller@LisaMillerAssociates.com ** The Florida Insurance Roundup from Lisa Miller & Associates, brings you the latest developments in Property & Casualty, Healthcare, Workers' Compensation, and Surplus Lines insurance from around the Sunshine State.  Based in the state capital of Tallahassee, Lisa Miller & Associates provides its clients with focused, intelligent, and cost conscious solutions to their business development, government consulting, and public relations needs.  On the web at www.LisaMillerAssociates.com or call 850-222-1041.  Your questions, comments, and suggestions are welcome!  Date of Recording 2/27/19. Email via info@LisaMillerAssociates.com   Composer: www.TeleDirections.com  © Copyright 2017-2019 Lisa Miller & Associates, All Rights Reserved

2018 was a tough year for flooding in the United States, and nowhere worse than in the Carolinas, where Hurricane Florence dumped three feet of rain in spots.  Damage is estimated at $13 billion but at least half of that is uninsured – as most residents had no flood insurance.  While some didn’t know they needed it, others took a gamble by going without and lost. But the bigger folly some argue is federal flood insurance itself which encourages some homeowners to disregard risk, by providing subsidized premiums at a level far below what’s actuarially-required to cover the claims’ costs.  The same program also pays homeowners to rebuild their flooded homes in the same low-lying spots, over and over again. How can we better protect our lives and property from flood waters?  And what urgency will Florence bring to the debate on providing better flood insurance protection for coastal and inland residents alike?  Host Lisa Miller sat down with a catastrophe risk modeler and a coastal flood scientist to get some answers. Show Notes: Lisa’s guests are both PhD’s – one working in private sector flood insurance and the other in public university research on flooded coastlines – and both are focused on mitigating risks.  Dr. Roger Grenier is Senior Vice President and Global Resilience Practice Leader at AIR Worldwide in Boston.  His team has worked since 1992’s Hurricane Andrew to develop catastrophe modeling as a way to predict the severity of extreme events.  Their data and analytics has helped make the insurance and reinsurance industries more resilient over time. Dr. Robert Young is a Professor of Coastal Geology and Director of the Program for the Study of Developed Shorelines at Western Carolina University in Cullowhee, North Carolina.  His team of scientists and policy analysts examine how storms and sea level rise are changing America’s coastline and communicate their findings to policymakers.  From individual homeowners to local communities to federal agencies, they have developed tools to protect from and adapt to flood risks. Dr. Grenier said advances in modeling technology are having a greater influence in assessing and pricing flood risk.  Older mapping technology, largely based on historical data, such as stream flows and hazard areas based on land use, has been used primarily by the National Flood Insurance Program (NFIP) to determine risk and rates.  The NFIP has evolved over its past 50 year history and is now beginning to adopt catastrophe models. “When you develop a model, you can look forward and assess not only changes in land use but also changes in the climate and that’s how our models are driven, by starting really with a climate model as opposed to relying strictly on historical data,” said Dr. Grenier.  Modeling brings other benefits: its cost and scalability mean more frequent updates and more realistic gray areas of risk in place of black and white maps, where a property is strictly “in” or “out” of a particular flood zone.   The podcast also discusses policies on pricing risk and funding rebuilding after flood calamities.  Dr. Young said federal policy provides “moral hazards”: incentives to do the wrong thing rather than the right thing.  After storms, federal flood insurance and federal Stafford Act disaster funding pay to restore homes and sometimes elevate properties and structures to help prevent future flooding, something he said is only a partial solution. “If you lift-up an oceanfront home, you still have to hold the shoreline in place.  And if you raise a community anywhere in the floodplain, you still have to get utilities to that community and get transportation in there.  The biggest problem that I see right now is that there are very few incentives to change the(continued)

The Thousand Oaks, California bar shooting.  The Pittsburgh synagogue massacre.  Just two of the recent mass shootings across the country involving what police term as an “active shooter.”   The worst to date in Florida was the Valentine’s Day 2018 shooting at Marjory Stoneman Douglas High School in Broward County, in which 17 people were killed and 17 others injured. Beyond the tragic loss of human life are the lives of the survivors affected.  How can they ever be made whole again?  The insurance industry is responding to these attacks by offering “active shooter insurance” – designed to help organizations and businesses whose employees, property and reputation are impacted.  Host Lisa Miller, a former deputy insurance commissioner, talks with an underwriter on this new line of insurance and its growing sophistication in coverage options for events that used to be unthinkable. Show Notes: Data from the FBI show the average number of active shooter events in the U.S. has doubled over the past eight years compared with the previous eight years.  There were 30 such events in 2017 - more than any other year since 2000.  Just what is available in the insurance market to protect individuals and businesses? Peter Bransden is an underwriter for Aspen Insurance, leading the firm’s Crisis Management team in Miami.   Aspen’s Active Assailant Insurance includes the acts of terrorism, kidnap and ransom, and product contamination.  “Active Assailant Insurance has been designed to protect policyholders against a wider range of attacks involving a weapon.  It is often referred to as “active shooter” insurance, but these events are by no means limited to firearms, as we have seen vehicle rammings, knife attacks, and suicide bombings,” Bransden said on the podcast.  Bransden explained that most policies include five main coverage categories: Property Damage, including sometimes significant structural damage Business Interruption, as such attacks often close the business for an extended period of time Legal Liability and Defense Costs, where a business or organization may be accused of not providing reasonable security, sufficient exit routes, or correct response to events Extra Expenses, including victim medical costs and funeral expenses Crisis Management, including family liaison services and media relations Some insurance policies even include mitigation and training by ex-FBI active shooter response agents, who will train a business or organization on how to prepare and respond properly in the case of such a horrific event. Most General Liability (GL) insurance policies do not cover active shooter events, leaving policyholders with potentially large liability exposure.  Many GL policies specifically exclude terrorism, following the 2001 911 attacks.  Bransden and host Lisa Miller discussed how the increase in shootings may prompt even greater policy exclusions. “I fear that the tipping point, as is often the case in insurance, will be a court ruling.  By that that time there will be on the one hand, a client facing the fallout from an active assailant attack and, on the other hand, an insurance company denying a claim. Ultimately the losers are the victims,” Bransden said. Miller noted that as the world becomes more complex, insurance companies have to adapt the products and services they offer to fit consumers’ changing needs.  Scenario-based modeling for casualty events and the practical insurance products that result, such as Active Assailant insurance, are good examples of innovation in insurance. “While no one has a crystal ball and can predict human behavior and the terrible tragedies that have befallen the nation this year, technology and actuarial science are improving how we quantify that risk and price it ac(continued)

Hurricane Michael struck Florida’s panhandle in October 2018 as a strong Category 4 storm, with sustained winds of 155 miles per hour.  At least 29 people in Florida died in the storm or its aftermath and another 10 people in Georgia, North Carolina, and Virginia, as of this recording.  Beyond the cost in human lives, is the cost of rebuilding homes, businesses, and infrastructure.  Estimates of insured losses alone are between $6 billion to $10 billion. Just how well did Florida's building codes, both old and new, hold up against the devastating winds - and what's needed in post-hurricane mitigation as Florida rebuilds?  Host Lisa Miller, a former deputy insurance commissioner, talks with two catastrophe adjusters on the ground with Michael's damages and the head of a consumer insurance group that's fighting for stronger building codes in the Sunshine State. Show Notes: Although Florida is recognized as having the toughest building codes in the nation, a large share of homes and other buildings in the Florida panhandle were built before 1995, when Florida’s tougher post-Hurricane Andrew building code was established.  The newer Florida Building Code (FBC) requires structures statewide to be built to withstand winds of 111 mph and up.  But it wasn’t until 2007 that homes in the panhandle built more than one mile from the coast were required to follow the higher standard.  (The Miami area is a “high velocity hurricane zone” with higher standards, in excess of 170 mph.) Catastrophe claims adjusters Jason Brugh and Jeromy Harding spent much of the following week after Hurricane Michael struck, surveying the damage from ground zero at Mexico Beach, Florida to the Alabama-Georgia state lines.  They also spent several days in service to local communities, helping clear downed trees from roads and people’s property, re-righting travel trailers, and in one case, putting out a fully-involved house fire.  Both had building construction backgrounds prior to becoming insurance agents and claims adjusters. Brugh, of Catalyst Insurance Management in New Port Richey said he and Harding saw total destruction in their travels in the panhandle, with nearly every structure suffering damage.  Their inspections revealed that standing seam metal roofs performed very well in the hurricane, while gable and three cap shingles were often completely gone.   “FBC 110 mph-rated shingles came off like you’re peeling Post-It notes off a Post-It pad,” Brugh said on the podcast.  “We did see improperly installed metal roofs, where they were installed over existing shingles, allowing for an air gap between the two roof surfaces and those roofs were totally devastated.  Those peeled the roof decking off like a beer can.”  He added that the only damage he saw to properly installed metal roofs was impact-related. Jay Neal, President and CEO of the Florida Association for Insurance Reform (FAIR), said Hurricane Michael is further proof that Florida needs to adopt the tougher Miami-Dade building code statewide.  “There’s no logic in having one higher standard for Miami-Dade County and not having it for the rest of the state,” he said.  Neal and FAIR are pushing the Florida legislature to provide more funding for mitigation of existing structures; and to make homeowners more aware, too, of the difference installing impact-resistant windows and enhancing roof connections to walls can have on their home surviving the next hurricane. “We spend about 15-cents per Florida resident giving cities, counties, and nonprofits the funds to spend on mitigation and that’s got to change,” Neal said.  He cited FEMA statistics that shows for every $1 invested in mitigation, $6 in damages are avoided.  It’s an issue FAIR will be presenting to the 2019 legislatu(continued)