Insurers tell how they decreased rates

A three-year-old insurance company based in Hollywood is one of the few insurers in Florida to come up with a rate cut for its policyholders, meeting the mandate set by lawmakers in January.

Coral Insurance passed on savings achieved by buying lower-cost back-up insurancefrom the Florida Hurricane Catastrophe Fund; it recently filed for a 9.7 percent decrease. But the company already had cut homeowners rates on windstorm coverage as it saw reinsurance rates drop in the private market at the beginning of the year.

‘‘We had no idea that the state government would step in and cause this to happen, ’’says Susan Straker, Coral’s president and CEO. In all, after factoring in mitigation credits, Coral’s windstorm rates have dropped about 50 percent this year, says Jay Carbine, vice president for underwriting and claims.

Right now, Coral operates in 12 counties, mostly in the southern half of the state.They include Miami-Dade, Broward and Palm Beach. Since its inception, the companyhas been writing new policies -- always with wind coverage. But it has strict underwriting criteria. It likes what Straker calls the ‘‘golden oldies, ’’ solidly built homes even more than 30 years old that have been completely upgraded to meet the new stricter building code. It will write homes of up to $2 million in value and up to 1 1/2 miles from the coast.

The company took advantage of some of the lower-cost back-up insurance from the CAT Fund, but on some of the coverage it could get a better deal in the private market than from the state.

‘‘The CAT Fund isn’t going to save anyone’s bacon. It’s a short-term fix for a long-term problem, ’’ says Carbine. Straker and Carbine discussed the Florida insurance market with The Miami Herald recently.

Q. How can Coral provide a rate cut when most other home insurers in the state are asking regulators for hefty rate increases?

A. Carbine: We had taken two rate increases in the last year. In the first quarter, because of Citizens’ [expansion], we began to lose a great deal of business to Citizens.

So we decided to give back some of the rate increases from last year. In February, we decided we would take a rate decrease and pulled the trigger in March for new andrenewal business. Then we realized we had to provide another rate decrease. (Basedon the insurance reform bill passed during the special session, insurers were required to pass on any savings achieved from buying lower-cost reinsurance from the CAT fund.)

At the end of the day, before mitigation credits are applied, we ended up with anoverall rate decrease, depending on the territory, in the region of 30 to 35 percent [on windstorm coverage].

Q. In what areas of the state is Coral still writing new homeowners policies?

A. Carbine: We are still committed to offer [insurance] markets to Florida, but we won’t do it stupidly. We are having to modify where we are writing. In some areas, we’re not making enough [premium] to cover attritional losses, forget about catastrophic losses.

Wind rates in Martin, St. Lucie, Brevard, Indian River counties have come down somuch. The pricing up there is so low after the mitigation credits that we aren’t offering much in the way of capacity.

So, the effect the state was trying to achieve, in our case, has had just the opposite effect. We have had to withdraw capacity. The same thing is happening over in Lee and Collier counties.

Q. What is the downside of having to cut rates?

A. Carbine: We have nearly 17,000 policies in place. [With lower rates], we would have to write 24,000 policies just to keep the same premium level.

Q. What’s the financial impact on Coral and other insurers operating in Florida these days?

A. Carbine: Because we need to have a certain level of premium coming across thethreshold, we have to write twice as many risks.

Our probable maximum loss -- related to catastrophes -- also goes up dramatically.That would have an impact on our [reinsurance] renewal premium next June.

I spent 40 years in reinsurance and let me tell you, what reinsurers will look at is exposure. Reinsurers then will apply a rate that will give them the premium they want for that exposure.

Q. Should the state not have meddled, though the desire to provide relief from higher insurance rates was well-intentioned?

A. Straker : This goes back to what a free market does and how it works on supply and demand. 2004 and 2005 were terrible years for reinsurers. But in 2006, the market brought new capacity. Everyone wanted to get into the game. And there were new [reinsurance and primary] companies that started to think, well, maybe the rates were adequate and Florida is the place to go.

The lead time for creating a new company in Florida is a year. Just as these new companies were ready to go live at the beginning of 2007, instead of letting the free market manage, the state stepped in.

There would been a multiplicity of new companies and the competition would havebrought the prices down. That’s what we anticipated was going to happen.

We knew our prices were going to go down in 2007, but we thought it would be freemarket forces.

A free market works all by itself. It self regulates. If you do a good job and charge an honest price, you will succeed. If you don’t, you won’t.


* Position: President and CEO, Coral Insurance.

* Past experience: Founded Laub Group of Florida, which engineered the first commercial residential (condominium association) JUA on behalf of Reliance National Insurance and Royal Indemnity in 1998. In 2003, began forming Coral Insurance.

* Education: Graduate of Fort Lauderdale High School, University of Florida and Florida Atlantic University.


* Position: Vice President, underwriting and claims, Coral Insurance

* Past experience: Worked for General Re; served as president and chief operating officer of the reinsurance division of Armco Insurance Group; also held management positions with International Risk Management Group throughout the 1990s. He joined Coral Insurance's management team in 2003.