Strengthening
the insurance market Five questions with Alex Soto
The Independent
Insurance Agents & Brokers of America had a chance to move the organization's
annual fall Leadership Conference to another city. But the trade group stuck by
its two-year-old decision to bring the meeting to New Orleans last month, one
year after Hurricane Katrina flooded much of the Gulf Coast, creating the largest
natural disaster the worldwide insurance industry has ever faced.
"We're supporting a city that's still not getting a lot of
convention business," said Alex Soto, president of InSource, a Dadeland insurance
agency. 'Everyone I've met says 'We're glad you're here.' "
As part
of the week's activities, Soto became the association's president for the next
year. He's only the fourth national president to hail from the Sunshine State
and the first Hispanic to lead the group.
Soto, a veteran of the insurance
industry for more than 35 years, has also led the Florida Association of Insurance
Agents.
Before departing for New Orleans, Soto sat down with The Miami Herald
to ponder Florida's current insurance crisis and possible solutions.
As
president of the national agents group -- IIABA represents more than 6,400 independent
agencies and brokers -- Soto plans to lobby for a national catastrophe fund to
help expand the capacity of the insurance market to take on hurricanes as well
as tornadoes in the Midwest, earthquakes and mudslides in California and hailstorms
in the Northeast.
Q: Is the current insurance crisis worse than what we
saw after Hurricane Andrew in 1992?
A: After Andrew we had a huge crisis
of availability and affordability, but insurance companies continued to write.
Prices rose back then, but not to current levels.
I believe we're seeing
a temporary dislocation where rates have gone beyond what is reasonable. We're
seeing bigger and bigger increases because there's too much demand and way too
little supply.
But we've reached the point where some homeowners can't afford
insurance at these prices. If they can't buy it, they go without it or they'll
have to leave the state. It's already having an impact. Real estate closings are
way down.
Q: Why so little supply?
A: At the end of the day, we don't
have enough insurance companies to write all the policies we need.
There
are more than 5,000 insurance companies in the United States and an overwhelming
number of these companies have chosen not to do business in our state and other
areas prone to hurricanes.
I travel to a lot of insurance company headquarters
to meet with CEOs. I'm asking them, I'm imploring them to do more business in
Florida. But they say Florida is a difficult state to do business in from a regulatory
point of view.
Companies have to provide mountains of documentation and
then we make them run the gauntlet of public hearings [after they apply for a
rate increase of more than 15 percent].
I give a lot of credit to Kevin
[McCarty] and OIR. They've tried to simplify the process.
Adding a public
counsel [to represent consumers in rate cases] could be counterproductive. We
already have a consumer advocate within the department of insurance. We have a
chief financial officer and a governor. It's their job to make sure rates are
not excessive, adequate and nondiscriminatory.
If the consumer advocate,
the CFO and the governor aren't doing their job, they need to do their job.
Q:
What else can we do to make insurance more available, and eventually more affordable,
for Floridians?
A: We need to continue to strengthen building codes and
have a uniform code throughout the state. We need to step up efforts to retrofit
homes because [a large percentage] of homes in South Florida are more than 20
years old.
I'll tell you important research that we need to fast track and
fund is [Florida International University's] Wall of Wind project. Researchers
are building a wind simulation device that will let them test 125 mph, 150 mph
winds and wind-driven water.
The results of the research should give us
an idea of where the weaknesses are in our buildings and homes, such as at what
wind velocity will the plywood on my roof give out. The research should also allow
us to develop stronger building materials, better fortify our homes and even suggest
building code changes.
Q: Everyone talks about mitigation. But mitigation
is still a relatively new idea. It can be confusing, time-consuming and costly.
What can be done to make it easier for homeowners to make their homes better able
to withstand hurricanes?
A: Dade County should train contractors to certify
mitigation work. They can suggest changes that can be made and inspect the work
after it's done. Get those homes a "Good Housekeeping" seal of approval.
That way, homeowners can qualify for mitigation credits more easily and quickly.
That will save homeowners some money.
Homes built before 1990 are usually
paying a surcharge because they weren't built to the current, stronger codes put
in place after Hurricane Andrew. But with certification on homes that have been
brought up to code, they should be able to get a discount.
Q: What's the
agent's role in all this?
A: The organization that I represent, we aren't
the insurance companies. We are the go-betweens, the intermediaries. We can offer
choice because we [work with several insurers] -- well, maybe not that much in
Florida -- and customization. I can [write a policy] for your home with Company
A that can give you a deal on your home. But I can put your jewelry with Company
B because it provides better coverage.
We also offer advocacy. Let me tell
you a story. Last year, I sent out letters to all our clients, suggesting they
buy flood insurance even if they weren't in a no-flood zone. I sent out about
4,000 letters. I didn't get 10 responses.
We drive this point in every year.
But it's a topic with very little romance.
We also sent out a cousin of
that letter, asking homeowners to check their policies to be sure they have sufficient
coverage to rebuild their homes after a major catastrophe. We got about 20 responses
and half were asking what the letter was all about. Maybe five to seven homeowners
actually bought the additional coverage.
