South Florida Sun Sentinel | Sep 22, 2021 at 5:52 PM
By Ron Hurtibise

Before long, homeowners who need to buy insurance from state-owned Citizens Property Insurance Corp. might not have the services of an agent to help them review their options if a controversial proposal is enacted into state law.

Carlos Beruff, appointed last year by Chief Financial Officer Jimmy Patronis as chairman of the company’s board of governors, is pushing a proposal to cut independent insurance agents out of its policy underwriting and sales process.

Beruff wants Citizens customers to instead buy their policies directly from Citizens’ website.

In a contentious meeting of Citizens’ Board of Governors on Wednesday, Beruff and a majority of board members overrode objections by Barry Gilway, the company’s president and CEO, and directed the company’s staff to seek financial information from large companies that sell insurance over the internet, cutting out independent agents and the need to pay commissions.

Citizens relies exclusively on about 7,500 independent agents from 2,500 agencies to sell its policies to customers who cannot otherwise find or afford private-market coverage.

Beruff wants to see if it would be in the state’s best interest to move toward what’s called a “direct-to-consumer” business model. The state Legislature would have to approve such a major change in the company’s operations.

It’s one of numerous ideas the company is exploring to reduce its policy count and avoid the potential of levying statewide assessments to cover claims costs after a major catastrophe.

Beruff said that paying commissions to agents helps to increase the company’s policy count, which has steadily grown since hitting a low of 420,000 in 2019. Citizens’ had 700,000 policies on Sept. 18 and is expected to reach or exceed 765,000 by year’s end.

“If you’re trying to shrink business, why pay people to grow your business?” he said.

Beruff first raised the idea to Citizens’ board in January. Agents and other insurance industry executives pushed back, saying in interviews with the South Florida Sun Sentinel that agents play a vital role in helping policyholders understand the complexities of their insurance contracts.

That help is especially important to Citizens customers, they said.

As the state’s so-called insurer of last resort, Citizens is unusual because its success is based on its ability to prevent growth of its business and transfer policies to private-sector insurance companies. But its recent growth has occurred because private-sector companies have sharply increased prices or stopped selling coverage to consumers with older homes, older roofs, and in southern and central Florida communities with high claims rates.

That has Citizens officials and lawmakers worried. If the company takes on too many policies and a devastating hurricane hits a crowded region like South Florida, Citizens’ claims-paying capacity could be rapidly depleted and all insurance customers in the state would have to be assessed to make up the shortfall.

Still, Gilway told Beruff that he disagreed with Beruff’s contention that cutting out agents would help reduce Citizens’ policy count. He also disagreed with the notion that agents are an unnecessary expense.

Citizens’ 7% commission, he said, is significantly lower than the 11% to 12% that agents can get by selling policies from private market insurers.

Kyle Ulrich, president and CEO of the Florida Association of Insurance Agents, said in an interview after the meeting that writing a policy with Citizens takes agents five to 10 times the amount of work that it takes to write a private-market policy. That’s because the agent has to submit the policy through a “clearinghouse” created by Citizens to ensure that the customer can’t get comparable coverage, he said.

Under state law, consumers can purchase a Citizens policy only if no other insurer is willing to cover them, or if the only other offers exceed Citizens’ cost by more than 20%.

Noting that independent agents placed 85% of 32,000 policies canceled when Gulfstream Insurance failed over the summer into private-sector companies and not Citizens, Gilway said, “We’re paying agents to defer business away from Citizens.” He added, “The 7% [commission rate] is a good solid reason that an agent does not come to us if a better alternative is available.”

Ulrich concurred: “Beruff seems to ignore the fact that without agents, CItizens wold have a lot more policies than it currently has,” he said.

Cutting out agents would require the company to hire 800 additional staff members, including many licensed agents, to handle the work now done by independent agents, a company official noted.

Beruff pointed to the fact that only 10% of insurance claims filed with Citizens are submitted by agents as evidence that policyholders could deal directly with the company.

Gilway said independent agents do more than write policies or file claims. “They may not process a high degree of the claims, but they do provide services to the customer. They attract the customer, they place the customer [with companies], they provide advice and counsel to the customers and help them in the selection of the coverages, the forms that they should appropriately have, that are the most economical.”

Details of how an online-only insurance sales model would work for Citizens weren’t discussed at Wednesday’s meeting and won’t be known unless the company persuades the Legislature to allow it to thoroughly study the concept.

Somehow, the new model would have to include a way to verify that the consumer doesn’t qualify for private-market coverage.

“That’s one of the fundamental facts that Beruff ignores,” Ulrich said. “Agents shop the voluntary market to keep policies out of Citizens. How would Citizens be able to shop those policies?”

Companies that have tried to adopt an online-only model, known in the industry as “insurtech,” ultimately find they need actual agents to succeed, he said. “Most people do not feel comfortable purchasing homeowner insurance online,” he said. “It doesn’t give them piece of mind when they’re trying to protect their biggest asset.”

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