State Farm Insurance Co. posted a $5.3 billion profit in 2004, up nearly 90 percent from the year before despite four hurricanes that pounded Florida and other southern states last year.In a State Farm company press release, it was revealed that the "underwriting gain" from its subsidiary property casualty group that includes State Farm Florida Insurance Company was $700 million -- compared with only $13 million the year before. Overall profits from the group totalled 31 percent of the company's 2004 profits.
* * *
Overall, State Farm's claims dipped about 5 percent last year even though payouts for hurricanes and other disasters were up 13 percent, spokesman Dick Luedke said. The net decline helped the company post an underwriting gain of about $2 billion, compared with a loss of $281 million in 2003.
Luedke also said the company saved nearly $630 million on hurricane claims through a special fund in Florida that protects insurers against weather-related losses. Insurers pay into the fund, then draw from it as needed.
"The 2004 underwriting results include losses and loss adjustment expenses totaling $2.9 billion (after reinsurance) related to the four hurricanes that made landfall in August and September."According to State Farm, thanks to 2004 profits, the company's "net worth for the State Farm group increased by $6.0 billion to $46.3 billion."
* * *
Total revenue for State Farm, which includes premium revenue, earned investment income and realized capital gains (losses), was $58.8 billion for 2004 compared with the 2003 figure of $56.1 billion. State Farm reported an after-tax net income from all sources of $5.3 billion in 2004 compared with a net income of $2.8 billion in 2003.
Routing of Mierzwa, Wind/Flood and 50/50 Claims
CITIZENS PROPERTY INSURANCE CORPORATION
TO: CLAIMS ADMINISTRATORS, AYO COMPANIES & EXAMINERS
FROM: CITIZENS CLAIMS MANAGEMENT
DATE: January 25, 2005
BULLETIN #21: Routing of Mierzwa, Wind/Flood and 50/50 Claims
In circumstances in which a Citizens policyholder:
• Has flood damage;
• Has made a demand for policy limits (whether or not they mention the Mierzwa case or Section 627.702, Florida Statutes, as the basis for the demand);
• Has a 50/50 claim; or
• Has received a “substantial damage”, or equivalent, letter from a municipality or county requiring compliance with current code or flood elevation, then
Immediately forward file to Bill Ellis with the attached cover sheet.
This Bulletin does not alter the existing claims adjusting rules regarding payment of any undisputed portion of a claim:
The undisputed portion of the claim should be tendered to the policyholder; with a statement that the disputed portion has not been denied and is under review.
Any questions should be directed to filereview@citizensfla.com
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This rule applies to the adjustment of claims related to Hurricanes Charley, Frances, Ivan and Jeanne and does not affect the
adjustment of other Citizens claims. [emphasis added by the blog]
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[ATTACHED FORM]
Mierzwa Routing Form
Deliver to: Citizens Property Insurance Corporation
Attn: Bill Ellis
2110 Centerville Rd.
Suite A
Tallahassee, FL 32308
(850) 521 8600
Date: ______________
Claim #: ____________
Named Insured: ________________
Date of Loss: __________________
From:_______________________
____________________________
Comments:
__________________________________________
__________________________________________
__________________________________________
__________________________________________
__________________________________________
01/25/05
"You get to the question of, are you running a charity or are you operating a business."-- Ed London, board member of Citizens Property Insurance, (February 23, 2005).Ed London, a real estate broker from Miami-Dade County, made those deeply offensive remarks the other day while defending the lawsuit Citizens Property Insurance filed against a Perdido Key couple. The lawsuit filed by the company manifestly is a last-ditch effort to avoid the law as laid down by the Fourth District Court of Appeals in Mierzwa v. Florida Windstorm Insurance.
You might have assumed — if you've dickered with an adjuster or fretted over your windstorm deductible — that property insurers must double their rates to survive.However, Reed points out, insurance company lobbyists often downplay or deny the reality of the highly profitable Florida casualty insurance business when working to scare legislators into approving rate increases.
Or that insurers will drop policies and leave the state. Or that a state fund must cover a bigger share of disaster claims for companies to remain solvent.
But none of that is true.
In fact, Florida's major property insurers managed to earn profits during the period that included hurricanes Charley, Frances, Ivan and Jeanne, securities filings and earnings reports show. Even as the industry announced record losses and called for higher rates, company executives told analysts they were strong enough to pay claims and still make money. And that's before any changes.
After the storms, the numbers still looked solid for Allstate Corp. On Oct. 21, chief executive Ed Liddy fielded questions from industry analysts during the company's third-quarter earnings conference call."Millions" in entertainment, food, and campaign contributions are spent in Florida by insurance industry lobbyists every year to persuade "state officials to grant rate increases or improve access to public catastrophe money," Reed reports.
"Does the storm activity impact your decision to buy back stock in the near term?" a Merrill Lynch analyst asked.
"No. We're generating good amounts of free cash flow," Liddy said. "We have more than enough capital to pay the claims and repurchase our shares."
His thoughts on the Florida homeowners market?
"We like Florida," he told an analyst from Deutsche Bank. * * * Three weeks later, Allstate told the news media that the hurricanes had wiped out a decade of profits in Florida. The company would stop selling homeowners policies until the Legislature decided whether to share more of the risk, Liddy said.
It's a proven posture for Florida's insurance industry: plead hardship to state politicians while still earning profits, or "surpluses" in the case of mutual insurers.
Citizens simply doesn't like the rule of law followed in the Florida case of Mierzwa v. Florida Windstorm Underwriting Assn., 877 So.2d 774 (4th DCA 2004). It's decided to challenge that existing rule of law by suing one of its customers in another court, sending intimidating letters to the others whose homes have been destroyed by a combination of wind and local ordinances that require the home to be torn down if it's more than 50% damaged, and then use the pending lawsuit as an excuse not to adjust windstorm claims for the next several years.St. John reports that because of Citizens's litigation tactics "home and business owners with 2004 claims for total losses may have to wait years for insurance companies and courts to decide how much damage was wind, how much was water and who must pay."
While insurance companies and policyholders battle in court about dividing the losses, claims are paid only partially or not at all, even if they're not part of litigation.St. John also writes that "among those also facing litigation are Allstate Floridian, USAA, Florida Select, Vanguard, Universal Property and Casualty and Southern Family Insurance."
"Citizens would not reveal how many claims it refuses to pay in full."Hey! Wait just a minute! If Citizens is telling the public that it has settled all but 2,400 Ivan claims, in how many of the 'settled' cases did the company ignore the Mierzwa decision, pay nothing, close the case, and kiss off the customer?
"Everyone wonders why the beach is not rebuilt. No one is getting any money," said John Pinzino, president of the Sans Souci homeowners' association and owner of three condominium units on Pensacola Beach."Brown. That's the predominent color of Pensacola Beach's famed "sugar white" sand these days. In all but a few areas outside the commercial core, dirty sand is piled as high as four stories waiting to be mechanically cleaned and spread along the eroded beach.
Regency Towers and Sans Souci Condominiums on Pensacola Beach as well as Sun Dunes on Navarre Beach usually are teeming with snowbirds this time of the year.Blair interviewed a number of prominent condo association officers about the slow progress in re-building on Pensacola Beach, Navarre Beach, and Perdido Key. What she found (although she doesn't articulate it this way) raises the question of whether Citizens Property Insurance is lying about its claims history.
But rather than gearing up for spring break in March -- the kickoff to the area's peak tourism season -- the buildings are vacant because Hurricane Ivan's assault was so severe they are uninhabitable.
The same is true for other resort condominiums between Perdido Key and Navarre Beach.
Many of the buildings that traditionally generate lucrative incomes for condo owners will remain vacant through peak tourism season - and possibly through next snowbird season, the winter months when residents leave the North for warmer weather in the South. Some condominiums won't be ready to house tourists until 2007.
"Everyone wonders why the beach is not rebuilt. No one is getting any money," said John Pinzino, president of the Sans Souci homeowners' association and owner of three condominium units on Pensacola Beach.Blair dutifully repeats the assertion from the state-owned insurance company that "Citizens has 15,825 Ivan claims. As of Feb. 3, the company reported 13,296, or 84 percent, had been closed." But the anecdotal evidence she collects casts doubt on those numbers.
Judy McCabe, community association manager for JME Property Management, which manages condo associations and beach properties up and down the coast, finds it hard to believe that Citizens has closed nearly 85 percent of Ivan claims.If "thousands" are waiting, as Blair writes, and Citizens really has settled 84% of the claims made, then virtually every open claim must be from Pensacola area beaches. That, we know, is not true. There are plenty more open claims from the mainland and elsewhere in Florida.
"No one is getting money," she said.
She attended a recent workshop in Destin with about 100 condo managers from Perdido Key to Panama City. When attorney Jay Newman, workshop organizer, asked members of the crowd how many had received settlements, "five raised their hands and said they had received little-bitty payments,'' McCabe said. "None had full settlements."
Said Pinzino of the lack of settlements: "It's causing a lot of pain for condo owners. People are really stressed out. It's financially devastating for some people.''
The situation is not unique to beach condo owners.
Thousands of residents and businesses across Escambia and Santa Rosa counties also are waiting on settlements to begin repairs.
But locals like John Pinzino aren't buying the Citizens line. With each passing month of insurance company delays, "condo owners are struggling with expenses associated with condos they can no longer live in or rent."
- "One of our immediate goals is to get advance payments to them so they can have enough to enter into contracts with repair contractors"
- "Citizens and the association may be in a dispute over the wind damage"
- "We are paying undisputed claims."
- '...there likely are legitimate reasons that some of these associations have not received settlements yet' [Glover] said.
Displaced condo residents are paying rent to live elsewhere in addition to mortgages on their condos. They still have to pay lease fees, condo fees and other costs involving condo ownership.Take a drive around the Pensacola area. Read the propaganda from Citizens Property. Then ask just who should you believe? Citizens Property or your own eyes?
Many of them also are paying thousands of dollars in special assessments levied after the hurricane to pay the associations' deductibles and damage not covered under insurance policies.
Pinzino is feeling the pinch.
In addition to his residence at Sans Souci, he owns two investment properties at Clarion Suites on Via de Luna. That condominium/hotel property has yet to receive any insurance money. It's so devastated that the 70 owners of the 86 units have decided to sell the property instead of rebuild.
* * *
Ira Mae Hewitt, who manages and owns condo units on Navarre Beach, said the situation is financially devastating for many condo owners.
"The problem is two-fold. The insurance companies are not responding," she said.
"Once you finally do get money, owners have to send the money to their mortgage companies and they decide what percentage they will pay them to start repairs," said Hewitt, who owns Century 21 Island View in Navarre and a unit at Sugar Beach.
"It appears that insurance and mortgage companies are keeping the money as long as they can. The people who are getting hurt are the people who have in good faith paid insurance and mortgages over the years," she said.
* * *
"There are people who are down to their last nickel waiting on a check," [Steve Lashley, a Regency condo unit owner] said.
As Lashley waits on his own insurance settlements he knows he can't reconstruct the units that have been stripped to the bare metal studs until Regency completes its work.
[Ken] Turk, Regency Association manager, said the building won't be ready for residents or tourists until the end of the year or even the first of 2006.
Regency's recovery hinges on when it receives the remainder of its insurance settlement.
"We were able to get $1.2 million advance out of our windstorm policy to get started," Turk said.
An estimated $14 million to $16 million is needed to repair and bring the two eight-story, Gulf-front buildings up to code.
Bills are starting to stack up for the work being done: removal of sand and debris, restoring electricity to the buildings and contracting the service of a water damage restoration and mold clean up company.
"I have millions of dollars in bills sitting on my desk that I cannot pay until we get a settlement," Turk said.
Officers of the state-run insurance company told Citizens' Board of Governors on Tuesday that 2004 hurricane losses exceed cash reserves by $400 million, pending a financial audit expected by the end of February.In another version of the same report on February 16 the Pensacola News Journal adds:
Unlike some other insurance companies, Citizens is paying the full tab for its 2004 hurricane claims. It chose not to buy backup coverage on the reinsurance market, and its losses did not trigger relief from the state's Hurricane Catastrophic Fund.Translated, that means, acccording to various news reports, that the state will be passing along a special assessment of $56 to $61 per insured household this year.
"Our capital is eliminated," board member Ed London repeatedly noted during the meeting Tuesday. He said the company has no cash saved to pay potential 2005 storm claims.
Citizens' borrowing ability remains good, London said, because of the legal ability to make up losses with charges against the state's policyholders.
Mr. Odom asks, You said you paid off $550,000,000 to date, but your estimate of total losses (not audible) Ms. Buss responds, That is $1.8 billion, that is both the model estimate and I will address this when I go over the financial report, but also, as we look at our own development and reported claims, we believe that is probably about where we will end up ironically with the four storms in totality.In effect, then, yesterday's news was no news at all. Citizens has been projecting the same or slightly higher losses for some months. They have ample cash and cash equivalent resources (i.e., "the notes") to pay the projected claims, which may be as much as $200 million less than initially projected.
* * *
Mr. Odom asks, So, as far as Citizens’ ability to pay claims,we have no issues at all as far as our ability to pay? Ms. Buss responds, That is correct. Currently we still have in just our operating accounts an excess of $1.5 billion in liquid cash. Cash flow will not be an issue for us. If the losses are as the model predicts or even as we sort of re-scope them [as we will go over in the financial report], then we would have to either draw down on the notes which is also money that is liquid and available and then repay through an assessment or levy an assessment timely enough that the money comes in to meet our cash flow needs. We don’t predict any situation where we would have any cash flow issues. We have ample cash on hand.
Nor is the insurer interested at this time in taking blanket action against a bad vendor. Company officers said they were fearful of antagonizing the very contractors on which they still rely.Oh, that's right. It's Groundhog Day!
"We have to work with these firms for the moment," Glover said. "We don't want to do anything to disrupt the claims while they're still being closed."
Even now the company shies from aggressive intervention. It has not fired a single claims administrator or taken all claims away from proven bad performers, relying instead on "strong words," Glover said.You want 'strong words'? Try these: It has been four and half months since Hurricane Ivan. Tens of thousands of homes and husinesses in the Florida panhandle remain utterly devastated by the storm. If things persist as they have been, it will be several years before the area recovers. Tens of thousands of customers paid higher-than-market-price premiums for Citizens Property Insurance coverage. Yet--
"What you got was 'phantom adjusters'," said Paul Hulsebusch, an insurance specialist hired by Citizens between storms to launch an emergency catastrophe claims center.It is past time to hold Citizens Property Insurance accountable. If state CFO Tom Gallagher won't do it, then the state senate of Florida should hold him accountable.
Thousands of Citizens Property Insurance customers are back at square one, more than four months after hurricanes damaged their now-rotting homes.St. John's article first ran on February 2, Groundhog's Day, in the Ft. Myers area News-Press .The Pensacola News Journal doesn't say why editors of our 'daily' paper took five full days before publishing the dispatch on the front page as today's main headline. (So much for the 'synergies' of media mergers.)
The state-run insurer has taken control of almost 7,000 claims that had been in the hands of problem private adjusters. In most cases, that means starting the process over for homeowners left without roofs since September and August.
Company officials blame a decision made years ago to rely entirely on third-party adjusters. The problem: Once the cases are assigned to an adjuster, Citizens has no idea what is happening to the claim until the adjuster comes back with an amount of damages or the policyholder complains of inaction.So, all is well now, right? Not so fast. Remember, St. John's piece ran on Groundhog's Day:
Since December, Citizens officials have told state officials that they largely have solved the problem by placing a small team of dedicated adjusters on payroll who can move forward once-stuck cases by flagging them for priority action.
The company also has created a customer-service center and has assigned representatives to handle each case that comes to its attention.
Citizens spokesman Justin Glover said the new system works.
He cited the case of a West Palm Beach condominium owner who had complained for months to Citizens. When the company investigated, it found the policyholder's adjuster had left Florida months ago.
Citizens has hired a new adjuster, Glover said.
Glover could not say, however, what happened to the other claims assigned to the departed adjuster. Nor could Glover address why the vendor didn't report its missing man because, aside from informal exchanges, Citizens leaves it to vendors to manage their own cases.According to St. John, "One of Citizens' major problems appears to be that there is no tracking system for claims, so the system relies on complaint calls from unhappy policyholders to prompt intervention. ... It will be different in 2005, Citizens' officials said."
Some storm victims say Citizens' improvements have done little good.
Jeff Grady, president of the Florida Association of Insurance Agents, related the case of a Daytona Beach resident now on his fourth adjuster from Citizens "and still no money."
"One adjuster got the claim worked up, then was let go, then the next was with a company that was fired, then, most recently, a guy comes out only to say he now has been taken off the job," Grady said.
"It's all for various reasons, but the end product to the customer is, he hasn't even gotten his claim run up the pole to see if Citizens will pay."
Records show almost all of Universal Risk's work came from Hurricane Ivan. By the end of December, the adjusting firm still had more than 300 open Ivan claims and almost as many complaint calls to the Department of Financial Services.... the vendor had the highest complaint rate of any company working for Citizens, although records show other contract adjusters with poor records.Got that? Citizens "took away" the claims from Universal but "cannot say how many claims it took away."
Even so, Citizens cannot say how many claims it took away from Universal Risk or any other company. Again, Citizens cannot trace reassigned claims back to their problem adjusters, excepting by pulling case files, one at a time.
Pensacola attorney Charles Beall Jr. said more than half his potential client calls involve Citizens Property Insurance, though the carrier has only 10 percent of claims in the region.While we're looking for answers, let's ask another question: Is state CEO Tom Gallagher, who oversees the debacle known as Citizens Property Insurance, incompetent or wilfully blind to the state insurance company's defalcations? In Gallagher's case, the answer is likely to come at the polls the next time he runs for office.
"I think the answer for Citizens is about to come in the form of lawsuits," Beall said.
