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Once Florida achieved a level of normalcy in the wake of the 2005 storms, sinkhole claims became an anchor around insurers’ necks starting in 2009. Once the Florida legislature finally passed sinkhole reform in 2011 (in conjunction with insurer underwriting initiatives), the “entrepreneurs” cultivated their new value proposition to Florida’s insureds by assisting them with repairing and remediating water claims. The following graphs place this into context by examination of expected gross ultimate losses (including defense and cost containment expenses) per exposure unit (i.e., earned house year). The data is based on a credible sample of Florida personal property experience.
The magnitude of the catastrophe experience in 2004 and 2005 makes it
challenging to fathom the financial implications of sinkhole claims and AOB.
Removing catastrophe claims permits the comparison to be more illustrative.
It’s reasonable to question the need to highlight sinkhole claims and those associated with AOB given that the results are de minimis compared to those for catastrophe claims. Insurance companies purchase robust amounts of reinsurance protection for catastrophic events. However, sinkhole claims and AOB-linked claims are essentially attritional losses (i.e., little to no reinsurance protection) to the primary insurer.
The intersection of weather catastrophes and the pervasiveness of the unresolved issue of AOB lends itself to pondering:
There are no definitive answers to any of these questions. We will continue to monitor developments and industry data to ensure that Pinnacle equips our clients with the tools to make better business decisions given everything that is afoot in the Florida property insurance market.
Putting aside the passion my colleagues and I have for our clients whom we dutifully serve in Florida, and the contempt that most have for the bad actors in the state, to our friends in Florida, know that the Pinnacle family has you in our thoughts and prayers as you weather this storm.
Art Randolph, FCAS, MAAA, CPCU, ARM, ARe, is a Principal and Consulting Actuary with Pinnacle Actuarial Resources, Inc. managing the Atlanta, Georgia office. He has been in the insurance industry since 1998, consulting since 2001. His consulting career has focused on medical professional liability, homeowners, workers’ compensation, commercial and personal automobile, general liability, and commercial multi‐peril exposures. Art is a member of the CAS Program Planning Committee and the AAA Medical Professional Liability Committee, and is actively involved with Physician Insurers Association of America (PIAA), National Association of Mutual Insurance Companies (NAMIC), Florida Chamber of Commerce, Casualty Actuaries of the Southeast (CASE), Gamma Iota Sigma Insurance Fraternity (GIS), and International Association of Black Actuaries (IABA, Director & Past Treasurer). He is a past member of the CAS Examination Committee and served as President & Director of the IABA Foundation.
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Pinnacle is an actuarial firm focused on property/casualty insurance, including alternative markets, captives, self insureds, enterprise risk management, predictive analytics, commercial lines and more. We serve trucking, insurance, health care, medical professional liability, reinsurance, workers compensation, public entities and other companies and concerns.
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