When involved with complex insurance claims (believe me, nowadays with all these new forms and restrictions, they are all complex and controversial), the policy language and the facts of the loss all must be taken into account to apply them to the coverage in order to get the correct payment to the policyholder.  But this may only be the beginning of what you need to know. Other issues face the adjuster which may be outside of your typical daily sphere of experience and knowledge. 

Claims professionals should always be attuned to the ever-changing political landscape, the rules promulgated by the regulators and laws passed by the legislature, all which are ubiquitous in this highly regulated and controversial insurance industry. Since insurance is regulated by the states versus the federal government, it is the state legislature that can pass laws that change the terms and conditions of generic policy forms. Being wise and smart is not always enough to be on your game.

As discussed in my last blog, Florida Property Insurance –Good News or Bad News – You Decide, I asked the rhetorical question about who knew about the workings of reinsurance and the assessment process. I will be the first to admit I did not know all the nuances of reinsurance and the assessment schemes the rules makers and lawmakers have finessed over the years following our exposure from historical catastrophic events. But I got some schooling which has hopefully made me a little better informed and thus smarter about Florida’s reinsurance and assessment plans when the next big one hits.

Scott Johnson of Johnson Strategies, a very experienced insurance veteran with a career on the regulatory side with the Department of Financial Services (DFS) as well as working on behalf of the Florida Association of Insurance Agents, was kind enough to respond to my last blog and provided the following information:

“While there may be some nuances that I am not aware of, I believe that it works this way:  Citizens buys reinsurance for the stated purpose of reducing the likelihood it will assess after a storm.  So, reinsurance will pay before any assessments are made.  Reinsurance treaties stipulate the level of payment and when/if the payment kicks in based on retention levels and other factors.  Assessments by Citizens only occur after a deficit, which can only occur after reinsurance has been fully paid.  The first tier assessment goes exclusively to Citizens policyholders.

No other companies can assess, except theoretically mutual carriers or assessable reciprocals.  So, they must be insolvent before FIGA will pay claims on their behalf.  Insolvency is basically when your liabilities exceed your assets.  Reinsurance is an asset and would be paid before FIGA could apply.  FIGA can assess all policyholders 2% if there aren't enough funds in reserve. This assessment is, of course, after the carrier is insolvent and its assets have been converted to pay claims, including completely exhausting its reinsurance. Citizens’ policyholders are not exempt from paying FIGA assessments and Citizens assessments.”

As you get older, wiser and smarter is not always a given with these back-room insurance matters. So there you have it, a tutorial with some very useful information on two subjects, assessments and reinsurance that folks on the frontline may not be aware of in our daily professional claim activities.

I don’t know about you, but I feel a little smarter and wiser about these two subjects having read Mr. Johnson’s explanation. Mr. Johnson writes a blog on insurance matters that you might want to add to your reading list. From my perspective, Mr. Johnson’s blog and his writing style is always informative, entertaining, knowledgeable, and perhaps to some controversial. In other words, not to be missed!