Diane Justo doesn’t want to wade into the intimidating world of home insurance on her own. She knows she could be in over her head with a single wrong step.
And yet, the newly appointed chairman of South Florida’s dominant insurance carrier is proposing to stop paying commissions to independent insurance agents, which could soon force Justo and others to sink or swim when it comes time to navigate their insurance choices.
Justo, a North Miami real estate agent, manages an apartment building and is responsible for keeping it insured. Each year at renewal time, Justo relies on her longtime independent insurance agent to search for the best possible coverage at the lowest possible price.
Right now, that’s state-owned Citizens Property Insurance Corp., the so-called insurer of last resort. Reliance on Citizens is increasing sharply in South Florida as high rates of litigation and fraud have caused many private-market carriers to stop selling coverage in Miami-Dade and Broward counties.
Justo says she relies on her agent to investigate her options so she doesn’t have to do the work herself. But that’s not the only time they talk.
“When Citizens called and said they were sending someone to the property to inspect it, I called her and asked, ‘Do you know why they’re doing this?’ She said, “Yes, it’s normal, don’t worry about it. I’m like, ‘OK.'”
Carlos Beruff, a Sarasota area homebuilder and newly appointed chairman of Citizens’ board of directors, last week urged the board to consider severing its relationship with independent agents.
Across the state, independent agents quickly criticized the idea as bad for Citizens and worse for their customers.
“Agents act as buffers between insurance companies and their agents,” said Eric Jacobson, a retired insurance agent who lives in Tamarac. “For example, an agent will suggest that a customer get an estimate for repairs before filing a claim. Agents can help decide if it’s worthwhile to file a claim that’s close to the amount of the policyholder’s deductible.”
CItizens relies exclusively on independent agents to sell coverage to customers who cannot otherwise find or afford coverage from private-market companies. It works with about 7,500 independent agents from 2,500 agencies, said Citizens spokesman Michael Peltier. The company has no in-house agents and no online sales portal.
Insurers of all types have expanded their abilities to solicit business online, but homeowners insurance, because of its complexity, typically requires interaction with independent agents or those employed by carriers.
Based on Citizens’ $1.4 billion in sales to 552,000 customers over the past year, eliminating the 7% commission paid to agents could save at least $98 million annually. That money could be put to other uses, Beruff said during Tuesday’s board meeting, such as reducing costs for customers in the Florida Keys, where a lack of options has forced 70% of property owners into high-priced Citizens policies.
Citizens CEO Barry Gilway responded that the idea would require “a significant change to Citizens’ plan of operations” and changes to state laws that govern the company.
In an interview after the meeting, Beruff said he proposed the option as part of his effort to improve efficiency. His goal as chairman, he said, is to prevent Citizens from depleting its $6 billion reserve after a catastrophic storm season, which would force all other insurance customers in the state to cover unpaid Citizens claims with assessments on their own insurance bills.
That risk grows whenever Citizens becomes the best and cheapest option for Florida homeowners. Over the past year, the company has increased by roughly 120,000 policies and could have 700,000 by the end of 2021, Gilway said in December. That $6 billion reserve could quickly disappear if the company fails to stem its growth and two or more major hurricanes hammer the tricounty region, Gilway said.
‘Direct to consumer?’
Beruff plans to ask Citizens officials to investigate the feasibility of replacing agents with what’s called a “direct-to-policyholder” model. That would likely require the company to hire in-house agents to handle sales by phone and online.
Asked whether such a move would make sense for Citizens, Beruff said he doesn’t yet know. “But I think it would be imprudent not to look at the issue in depth and not just on the surface,” he said.
Most agents contacted for this story said they want Citizens to get smaller because they don’t like dealing with it.
Writing a policy for Citizens requires several times as much work as writing with a private-market company because of the additional paperwork Citizens requires under state law, several agents said. Meanwhile, Citizens’ 7% commission is less than the 10% they typically earn from private-market companies.
“If Citizens thinks they can provide the services [for the same expense] that an independent agent does at 7% commission, I think they will find out they are gravely mistaken,” said Ryan Papy, president of Palmetto Bay-based Keyes Insurance.
Because so many private carriers have pulled out of the South Florida market, Keyes is writing more Citizens policies than it would prefer. Currently, 18% of Keyes’ clients are insured by Citizens compared to 7% a year ago, Papy said. The amount of work required makes its tough to break even on the 7% commission, which for a $3,000 policy is $210. Renewing a Citizens policy costs the agency an average $200, he said.
Under state law, Florida homeowners can get a Citizens policy only if they cannot otherwise find coverage from a private-market company, or if the only available options are priced more than 15% above what Citizens charges.
‘It makes no sense’
Every time a Citizens customer comes up for renewal, agents must solicit quotes from private market companies, then document that the customer cannot get coverage elsewhere. Because of that additional bureaucracy, Keyes had to double its number of employees, from eight to 16, who process new policies, Papy said.
To match that service, Citizens would have to solicit multiple quotes for each of its customers every year. Otherwise, said Michael Miller, president and CEO of Brightway Insurance, customers “would not know if or when they may be eligible to move to another company for better coverage or pricing.”
Selling insurance directly to consumers “would not eliminate the need for agents,” said Kyle Ulrich, president of the Florida Association of Independent Insurance Agents trade association, in a blog post responding to Beruff’s remarks. “Instead, it would require Citizens to create a substitute, perhaps a massive call center, with hundreds, if not thousands of internally licensed employee agents. The expense would rival the $98 million a year that Citizens pays agents today, Ulrich wrote.
“It makes no sense,” said Tom Cotton, owner of Hugh Cotton Insurance Agency in Orlando. “In what universe does government do something more efficiently or provide better service than the private sector? Ask people in Florida who’ve recently gone through the state’s unemployment system.”
Employees of a Citizens call center could not be expected to provide comparable expertise to Florida consumers, said Chris Heidrick, founder and principal of Heidrick & Co. on Sanibel Island near Fort Myers.
“How is a $30,000 call center employee going to provide anywhere near the service I provide?” Heidrick said.
Another way some large insurers are selling directly to consumers, online portals, don’t work as well for homeowner insurance as they do for health and auto insurance, which require fewer customer decisions, said Peresh Patel, chairman and CEO of Tampa-based Homeowners Choice Property & Casualty Insurance.
Customers “want to talk to an agent,” Patel said. “They want to know — is my coverage correct? For most, their home is their biggest asset and they want to make sure it’s protected.”
The value of agents
In 2015, Homeowners Choice launched an affiliate company called Typ Tap that was marketed as a way consumers could buy flood coverage online much more quickly compared to the federally subsidized National Flood Insurance Program.
But Typ Tap soon found that most of its business was coming from independent agents who appreciated how quickly they could process flood policies. When Typ Tap started selling homeowner insurance a few years later, the founders decided not to build an online portal or sell directly to consumers.
Instead, they doubled agents’ commissions to 20% for new customers’ first year of coverage.
“It’s not that [direct online sales to consumers] doesn’t work,” Patel said. “It’s that we’d have to hire people to do the stuff we ask our agents to do for consumers.”
Large companies such as auto insurers Geico and Progressive, and even some national property insurance companies like USAA Casualty Insurance Co. or Nationwide can cut expenses by building large in-house staffs to perform agents’ functions, Patel said.
The difference is those companies want to grow. As they add customers, the fixed cost of an in-house staff becomes smaller as a percentage of the companies’ expenses.
Citizens, by contrast, isn’t supposed to grow and in fact is taking steps to discourage new business, including increasing its rates to make it less attractive compared to private market companies. As it sheds customers, Citizens would see the fixed cost of its in-house sales function become grow as a percentage of expenses, Patel said.
To Diane Justo, no in-house sales agent could possibly fill the shoes of her agent, Dulce Suarez-Resnick, vice president of NCF Insurance Associates in Miami. Suarez-Resnick has been her agent since 1993 and Justo is confident that Suarez-Resnick has her best interest at heart.
“She comes to see us,” Justo said. “She asks a bunch of questions: ‘Did you think of this or that?’ She says, ‘I know you don’t want to pay too much, but I don’t want you to be underinsured. Insurance is all she talks about. She lives and breathes this stuff.”
