Insurance agents have asked the state's insurance commissioner to investigate the solvency of a company that built its Florida market share by taking policies out of state-run Citizens Property Insurance Corp.
American Colonial Insurance Co., based in Birmingham, Mich., notified Florida agents on Aug. 5 that it intended to cut their commission rates from 12 percent to 5 percent, according to an Aug. 15 letter to Florida Insurance Commissioner David Altmaier from Corey Mathews, CEO and executive vice president of Professional Insurance Agents of Florida.
American Colonial later agreed to increase the commission rates to 8 percent, after being notified by Citizens' CEO that they risked violating the terms of their policy assumptions.
But that was after Mathews requested "an immediate investigation" into the solvency of American Colonial, saying the commission rate cuts combined with the company's "refusal to respond to repeated calls for further explanation suggests that this carrier, and its insureds, our clients, may be in real danger."
Altmaier's office responded on Aug. 24 by thanking Mathews for the correspondence and saying his comments and concerns "will be taken under advisement."
American Colonial President Andrew Petcoff did not immediately respond to a telephone message left at his Michigan office on Wednesday afternoon.
The company had 4,489 personal residential insurance policies in Florida at the end of March, according to data maintained by the state Office of Insurance Regulation. Of those, 3,339 were in the tri-county region.
As of the end of January, 3,531 of the company's Florida policies were former policies of Citizens Property Insurance Corp. that had been "taken out" as part of the state's efforts to depopulate the state-run "insurer of last resort," according to data American Colonial reported in a state filing. Removal of up to 27,491 Citizens policies was approved for the company in August and December 2014, state records show.
Reached Wednesday, Mathews said his request for an investigation was also prompted by American Colonial's mid-August filings for state approval of property insurance rate increases. The company is seeking rate increases averaging 14.9 percent for Citizens "takeout" customers and 7.8 percent for customers who bought policies outside of the takeout process, filings show.
After learning of the commission rate cuts, Citizens President and CEO Barry Gilway contacted American Colonial and said that reducing agents' commissions below the 7.4 percent rate that Citizens originally paid on the policies would violate contractual terms governing Citizens takeouts, according to Citizens spokesman Michael Peltier.
American Colonial representatives promised to fix the problem by raising agents' commissions to 8 percent, Peltier said.
"When the discrepancy in terms was brought to Colonial American's attention, they reacted immediately to rectify the problem and bring their commission structure into compliance," Gilway was quoted as saying in a statement provided by Peltier.
Mathews said he's confident that state insurance regulators will take a close look at the company's financial health in their review of its rate increase requests. The company was among all 67 that passed the Office of Insurance Regulation's simulated "stress test" of their financial ability to pay out claims in three hurricane storm scenarios.
While 8 percent commission is better than 5 percent, it's still below the 10 percent rate most insurance companies pay, Mathews said. "Eight percent is the lowest commission rate [for companies that aren't Citizens] that I'm aware of," he said. "It's not good."