WEBVTT - Why Home Insurance in Florida Is a Mess 0:00:00.440 --> 0:00:03.880 Hey, their listeners. Bloomberg wants to hear from you. Help 0:00:03.960 --> 0:00:07.040 make shows like All Blots even better by taking the 0:00:07.080 --> 0:00:10.440 Bloomberg Audience Survey, and you can get a coffee on 0:00:10.600 --> 0:00:14.480 us for doing so. Visit YouTube dot com Forward Slash 0:00:14.520 --> 0:00:17.960 Bloomberg Podcast and click the link in our profile or 0:00:18.000 --> 0:00:21.800 the community section to take the Bloomberg Survey hosted by 0:00:21.840 --> 0:00:25.560 our partners material Go to YouTube dot com Forward Slash 0:00:25.640 --> 0:00:27.440 Bloomberg Podcast Today. 0:00:29.920 --> 0:00:43.480 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:45.920 --> 0:00:49.080 Hello and welcome to another episode of the Audlots Podcast. 0:00:49.200 --> 0:00:50.559 I'm Tracy Allaway. 0:00:50.280 --> 0:00:51.520 And I'm Jill Whysenthal. 0:00:51.920 --> 0:00:53.800 Joe, we need to do more on insurance. 0:00:54.280 --> 0:00:59.280 Yeah, absolutely so. We are recording this October eighteenth. In 0:00:59.360 --> 0:01:03.640 the last several weeks, we've had two extraordinary storms. The 0:01:03.760 --> 0:01:08.119 second one, Milton, that aimed directly at Florida near Tampa Bay, 0:01:08.319 --> 0:01:12.080 was not as bad as people thought even a few 0:01:12.120 --> 0:01:15.160 hours before landfall, which people thought it's just going to 0:01:15.200 --> 0:01:20.200 be tremendously catastrophic potentially. However, it was obviously still quoite damaging, 0:01:20.720 --> 0:01:25.240 and once again the question of hurricane risk, storm risk 0:01:25.600 --> 0:01:29.240 these certain flood prone markets, Who's going to pay for them. 0:01:29.280 --> 0:01:32.120 All of these things continues to be a source of 0:01:32.200 --> 0:01:35.959 I would say, rising anxiety regardless of what just happened 0:01:35.959 --> 0:01:36.559 with these storms. 0:01:36.680 --> 0:01:40.679 Yeah. Absolutely, And you've seen estimates flying around for how 0:01:40.760 --> 0:01:42.600 much this is going to cost the insurers, but I 0:01:42.640 --> 0:01:44.559 think there was one that said as much as fifty 0:01:44.560 --> 0:01:48.200 five billion from those two storms, So big numbers here. 0:01:48.520 --> 0:01:51.920 And obviously people who live in those areas have been 0:01:51.960 --> 0:01:55.080 talking for a long time about how their insurance premiums 0:01:55.120 --> 0:01:58.560 are already going up a lot, and certain areas of 0:01:58.600 --> 0:02:02.560 the country are perhaps coming unaffordable, or maybe you can't 0:02:02.600 --> 0:02:06.920 find insurance for a property on the coast of Florida anymore, 0:02:07.080 --> 0:02:09.200 or if you do, you have to go to the 0:02:09.280 --> 0:02:13.200 state insurance body rather than a private entity. And I 0:02:13.200 --> 0:02:15.720 think just getting really a big picture, I find insurance 0:02:15.760 --> 0:02:20.200 fascinating because it's basically the original finance y. It's like 0:02:20.360 --> 0:02:25.240 the pricing of risk is essentially the very essence of finance. 0:02:25.320 --> 0:02:27.360 So I find the idea of how we're going to 0:02:27.400 --> 0:02:30.320 be pricing the risk of more and more storms, who's 0:02:30.360 --> 0:02:33.760 going to bear those costs absolutely fascinating totally. 0:02:33.800 --> 0:02:36.760 And we know there are structural issues going on in 0:02:36.800 --> 0:02:39.680 the market and their myriad and we will get into 0:02:39.720 --> 0:02:42.600 all them. But yes, there is much to discuss on 0:02:42.639 --> 0:02:45.680 this topic on this episode in PRIT many episodes to come. 0:02:45.720 --> 0:02:48.520 Okay, So in this particular discussion, we're going to be 0:02:48.520 --> 0:02:50.720 coming at it from a slightly different angle. We're going 0:02:50.760 --> 0:02:53.840 to focus on Florida, what's been happening in the structure 0:02:53.840 --> 0:02:56.680 of that market and what else could be done. And yes, 0:02:56.840 --> 0:03:00.640 I promise listeners there will be discussion about Flora roof 0:03:00.840 --> 0:03:03.400 insurance frauds and all of that, because there are some 0:03:03.480 --> 0:03:07.080 interesting things happening there as well. So I'm very happy 0:03:07.120 --> 0:03:09.480 to say we do, in fact have the perfect guest. 0:03:09.760 --> 0:03:12.720 We're going to be speaking with Jerry Theodoro. He is 0:03:12.800 --> 0:03:16.360 the policy director of Finance, Insurance and Trade over at 0:03:16.480 --> 0:03:19.959 Our Street Institute, which describes itself as a free market 0:03:20.000 --> 0:03:23.519 think tank. He has written a lot about the Florida 0:03:23.560 --> 0:03:26.480 insurance market. So Jerry, thank you so much for coming 0:03:26.480 --> 0:03:27.160 on all lots. 0:03:27.440 --> 0:03:29.600 Thank you, Tracy, thank you. Joe's a pleasure to be here. 0:03:29.880 --> 0:03:32.920 So maybe give us your background just to start, because 0:03:32.960 --> 0:03:35.680 you've been in the insurance world for a while. 0:03:36.480 --> 0:03:39.880 Yeah. Thanks. I began my career as a commercial underwriter 0:03:39.960 --> 0:03:42.600 at Chubb and Son, and after a couple of years, 0:03:42.640 --> 0:03:46.240 moved over to AIG. AIG shipped me over to Europe 0:03:46.240 --> 0:03:48.840 and I worked in Paris and Frankfurt in the Middle 0:03:48.840 --> 0:03:52.200 East for about ten years as an expatriate, and after 0:03:52.200 --> 0:03:55.480 coming back to the United States, I joined a company 0:03:55.480 --> 0:03:58.640 called Conning. Worked at Conning for about a dozen years. 0:03:58.640 --> 0:04:02.200 Conning is an insurance manager that has an insurance research arm. 0:04:02.520 --> 0:04:04.600 I was one of the researchers there. One of the analysts, 0:04:04.640 --> 0:04:06.760 wrote a lot of books, did a lot of presentations 0:04:07.280 --> 0:04:09.760 on the insurance industry, and about three and a half 0:04:09.800 --> 0:04:13.040 years ago I joined our Street and using my knowledge 0:04:13.080 --> 0:04:16.479 of the market and economics and products connections in the 0:04:16.480 --> 0:04:21.560 industry for public policy purposes to explain to folks in 0:04:21.720 --> 0:04:26.440 Washington and state capitals how insurance works and recommended policy 0:04:26.520 --> 0:04:28.920 solutions for areas that are troubling, like the one we're 0:04:28.920 --> 0:04:29.680 discussing today. 0:04:30.040 --> 0:04:33.359 You do sound, indeed like the perfect guest. You know, 0:04:33.520 --> 0:04:36.120 let's say fifteen years from now, or let's say not 0:04:36.160 --> 0:04:38.480 fifteen years from now, let's say today I was sixteen, 0:04:38.480 --> 0:04:40.440 I'm like, all right, I'm ready to retire. I don't 0:04:40.480 --> 0:04:43.320 want to live in the cold weather anymore. I just 0:04:43.360 --> 0:04:47.320 wanted a nice little house in Fort Myers, Florida. But 0:04:47.400 --> 0:04:49.039 I kind of want to get insured because it's a 0:04:49.040 --> 0:04:52.800 big part of my retirement, this asset. What are my options? 0:04:52.800 --> 0:04:54.720 What am I going to do? Well? First of all, 0:04:55.160 --> 0:04:57.799 I agree, it's a lovely prospect to have a place 0:04:57.839 --> 0:05:00.880 in Fort Myers where you can see the front from 0:05:00.880 --> 0:05:03.800 your window. But when the ocean comes into your bedroom, 0:05:04.120 --> 0:05:06.600 that's another story, and that's when you should reconsider if 0:05:06.680 --> 0:05:08.200 you made the right decision. 0:05:08.920 --> 0:05:10.560 But I made that decision, all right, So now I'm 0:05:10.600 --> 0:05:12.000 making the insurance decision. 0:05:12.080 --> 0:05:14.760 Now he has to get insurance for his retirement property. 0:05:14.800 --> 0:05:16.240 What does he do? What are his options? 0:05:16.400 --> 0:05:20.440 Yeah? Well, first of all, having homeowners insurance is not 0:05:20.480 --> 0:05:23.360 only important, but it's required if you have a loan, 0:05:23.600 --> 0:05:26.120 mortgage loan that's backed by the federal government one of 0:05:26.160 --> 0:05:30.039 the GSS Fanny May Freddie Mech, so it's required. Some 0:05:30.080 --> 0:05:33.599 people go bare, they don't carry insurance. And there are 0:05:34.720 --> 0:05:39.680 three major sources of insurance for future retire research as yourself, Joe. 0:05:39.839 --> 0:05:44.240 One is the national insurance market, so you're jumbo insurers 0:05:44.240 --> 0:05:48.560 that operate nationally all state state farm Travelers, Hardford, and 0:05:48.640 --> 0:05:51.360 the like, And there's also some companies that are the 0:05:51.640 --> 0:05:54.719 so called Florida Domestics is your companies that were set 0:05:54.800 --> 0:05:59.680 up following catastrophes about fifteen years ago that are focused 0:05:59.680 --> 0:06:02.599 on flow and four of them are publicly traded. And 0:06:02.640 --> 0:06:06.440 there's also Citizens Property Insurance. Citizens Property is a state 0:06:06.560 --> 0:06:10.680 run ensure in Florida. So those are the three options, 0:06:10.720 --> 0:06:14.120 and agents are the ones that are responsible for guiding 0:06:14.200 --> 0:06:16.320 you to get the best policy for the best price. 0:06:16.920 --> 0:06:19.359 So that's the market that you'll confront Joe when you 0:06:19.400 --> 0:06:19.800 get there. 0:06:20.120 --> 0:06:25.160 So insurers of last resort in Florida like Citizens, At 0:06:25.200 --> 0:06:28.640 what point do you get access to those? Like I've 0:06:28.680 --> 0:06:31.479 never really understood that no one else will give you 0:06:31.560 --> 0:06:33.640 insurance or is it that no one else will give 0:06:33.680 --> 0:06:35.919 you insurance at a price that you like? 0:06:36.200 --> 0:06:39.120 Yeah, it's at a price that you like. So Citizens, 0:06:40.080 --> 0:06:42.960 as you say, Tracy the insurer of last resort. So 0:06:43.000 --> 0:06:45.480 if you agent can't place it with any of the 0:06:45.640 --> 0:06:49.920 national or the Florida only domestics, then Citizens is required 0:06:50.279 --> 0:06:54.880 to take that policy. However, if the Citizens policy proves 0:06:54.920 --> 0:06:58.080 to be more expensive than one on the market, then 0:06:58.080 --> 0:07:00.400 you're obligated to take one that's in the private market. 0:07:02.000 --> 0:07:05.479 So people say there is an uninsurance crisis in Florida 0:07:06.160 --> 0:07:08.640 due to the storms and due to other structural things. 0:07:08.880 --> 0:07:11.240 I guess I have a two part question. A. Do 0:07:11.280 --> 0:07:14.239 you accept a premise that there is something broken about 0:07:14.280 --> 0:07:17.600 the in Florida insurance market as it stands right now? 0:07:18.120 --> 0:07:20.400 And B how would you describe it. 0:07:20.560 --> 0:07:22.600 I wouldn't say that it's broken, but I would say, 0:07:22.680 --> 0:07:25.080 like a piece of porcelain that's cracked, it's got a 0:07:25.080 --> 0:07:27.320 bit of a it's got cracks to it. And it's 0:07:27.360 --> 0:07:31.800 more than just the risk of hurricanes and floods, because 0:07:31.920 --> 0:07:35.400 Florida is, after all, mainly a peninsula jutting into warm 0:07:35.440 --> 0:07:37.960 waters of the Gulf of Mexico and the Atlantic Ocean, 0:07:38.000 --> 0:07:41.720 so it's prone to catastrophes. There have been storms in 0:07:41.760 --> 0:07:44.800 Florida for as long as we've got data on that. Yeah, 0:07:44.880 --> 0:07:46.520 let's go back to two thousand and four. In two 0:07:46.560 --> 0:07:50.760 thousand and four, there were four landfalling storms that hit Florida. 0:07:51.440 --> 0:07:55.480 Those were Charlie, Francis, Ivan, and Gene. And in two 0:07:55.480 --> 0:08:00.480 thousand and five there was we call the KRW Katrina. Ilma. 0:08:00.720 --> 0:08:04.000 Now Rita did the most damage to Florida. So there 0:08:04.000 --> 0:08:08.560 were two back to back years of really strong hurricanes, 0:08:09.120 --> 0:08:12.560 and the market took a licking and as they used 0:08:12.560 --> 0:08:15.840 to say with TIMEX watch advertisements, but it kept on ticking. 0:08:16.120 --> 0:08:20.800 So the market continued and what is more, fresh capital 0:08:20.920 --> 0:08:24.760 came in after two thousand and five because banking on 0:08:24.840 --> 0:08:27.600 the theory that, to paraphrase, that lightning doesn't strike the 0:08:27.600 --> 0:08:30.320 same place twice. Indeed, the bet was a good one. 0:08:30.360 --> 0:08:32.200 In two thousand and six and two thousand and seven, 0:08:32.400 --> 0:08:34.880 there were no hurricanes that made landfall in Florida. The 0:08:34.920 --> 0:08:39.240 insurance company recouped the amount that had lost, So the 0:08:39.240 --> 0:08:43.480 market was functioning. And now we're in the wake of 0:08:43.559 --> 0:08:46.800 Helene and Milton, and these questions are being asked, but 0:08:46.920 --> 0:08:49.800 for a variety of reasons which I'd like to get into. Yeah, 0:08:49.880 --> 0:08:54.320 the market is resilient. It has these walls that protect 0:08:54.440 --> 0:08:58.000 the balance sheets of these companies because the risk is recognized. 0:08:58.280 --> 0:09:00.600 So why is it cracked? The reason it's because that's 0:09:00.679 --> 0:09:03.040 conventional insurance. Insurance companies are in the business. 0:09:03.040 --> 0:09:05.640 By the way, I just years ago, Tracy, we did 0:09:05.679 --> 0:09:08.720 an episode I went through an obsession with Florida history, 0:09:08.840 --> 0:09:12.360 like an old old odd loss days like twenty fifteen. Oh, 0:09:12.360 --> 0:09:15.319 we've did episodes about the nineteen twenty six hurricane and 0:09:15.400 --> 0:09:18.920 the nineteen twenty eight ok Choby hurricane that caused the 0:09:18.960 --> 0:09:21.720 Florida land that bubble. You know, Florida's history is not 0:09:21.760 --> 0:09:24.160 just hurricanes, It's also history of bubbles and busts. 0:09:24.160 --> 0:09:26.320 Sometimes I feel we've been doing the show too long 0:09:26.400 --> 0:09:28.760 when it's like, oh, yeah, go to our back catalog 0:09:28.840 --> 0:09:32.240 for the episode on the nineteen twenties Florida property bubble, 0:09:32.520 --> 0:09:34.680 but just a catfish bubble. But I say too. 0:09:34.800 --> 0:09:37.440 But I only say this to appreciate your point that 0:09:37.559 --> 0:09:40.679 storms in Florida are certainly nothing new and nothing that 0:09:40.920 --> 0:09:43.840 catches people really by surprise at this point. So anyway, 0:09:44.120 --> 0:09:46.680 keep going on with what you were saying about why 0:09:46.720 --> 0:09:50.880 there's cracks even if the storm story is nothing now right. 0:09:51.200 --> 0:09:56.079 Other states also have catastrophe exposure Texas, California. But Florida 0:09:56.160 --> 0:09:59.360 was special in a way that's unrelated to the risks 0:09:59.360 --> 0:10:02.880 and the premium of insurance, and that is because of 0:10:02.920 --> 0:10:06.880 the activity of the trial bar. In Florida. You have 0:10:07.040 --> 0:10:11.320 billboards on every highway advertising if you have a truck accident, 0:10:11.840 --> 0:10:16.160 call us. We had a two million dollar judgment, so 0:10:17.000 --> 0:10:22.080 a lot of legal advertising and people are responding to that. 0:10:22.160 --> 0:10:25.920 So insurance companies are getting sued in Florida more than 0:10:25.960 --> 0:10:28.160 anywhere else in the country. Let me give you a 0:10:28.240 --> 0:10:31.880 statistic here. Florida has got about eight percent of the 0:10:31.960 --> 0:10:35.480 country's population, so it's got about eight percent of the 0:10:35.520 --> 0:10:39.400 homes and the homeowner insurance policies in the country, but 0:10:39.520 --> 0:10:43.800 it has seventy eight percent of the homeowner's litigation. So 0:10:43.840 --> 0:10:46.720 the state of Florida alone has got four fifths of 0:10:46.760 --> 0:10:49.920 the entire country's litigation. And what are the lawsuits. A 0:10:49.960 --> 0:10:53.800 lot of them are related to what's called aob assignment 0:10:53.840 --> 0:10:57.240 of benefits. So if you have a house that sustains 0:10:57.559 --> 0:11:01.000 some damage, someone will come to your house and adjuster 0:11:01.640 --> 0:11:03.679 and ask you to sign a form saying we'll take 0:11:03.720 --> 0:11:05.800 care of the insurance for you. We'll put in a claim. 0:11:05.880 --> 0:11:09.280 So they put in a claim and the damage was 0:11:09.320 --> 0:11:11.840 not something that was caused by the storm. It's discovered, 0:11:11.920 --> 0:11:15.160 for example, and the insurance company denies the claim, and 0:11:15.200 --> 0:11:17.760 then the attorneys will sue the insurance company for a 0:11:17.840 --> 0:11:21.000 high five figure amount and rather than fight it and 0:11:21.280 --> 0:11:23.840 spend a lot of money more than the case is worth, 0:11:24.160 --> 0:11:28.640 they settle. So this has attracted a cottage industry in 0:11:28.720 --> 0:11:34.200 filing frivolous suits and giving Florida the reputation of being 0:11:34.679 --> 0:11:37.400 owned and driven by the trial bar. 0:11:52.520 --> 0:11:56.560 How did Florida become an environment for this type of 0:11:56.640 --> 0:12:00.320 litigation to begin with? Like why is the trial bar 0:12:00.640 --> 0:12:02.839 so big in that particular state. 0:12:03.960 --> 0:12:06.439 Yeah, I don't want to get into politics, but. 0:12:07.600 --> 0:12:09.240 We might actually have to get into politics. 0:12:09.240 --> 0:12:14.200 But politics does play a hand. A lot of the donations, 0:12:14.240 --> 0:12:19.280 the contributions that are made to local politicians campaigns comes 0:12:19.280 --> 0:12:21.640 from the trial bar. This is on a national basis 0:12:21.679 --> 0:12:25.880 and not just Florida, but in Florida it's especially the case. 0:12:25.920 --> 0:12:29.200 And also there was some bad legislation that was passed 0:12:29.240 --> 0:12:34.040 in Florida which permits these things. So the statutes are 0:12:34.240 --> 0:12:39.439 unfavorable compared to others where a case that doesn't meet 0:12:39.800 --> 0:12:43.800 the pleading standard is just not advanced. So you have 0:12:44.160 --> 0:12:46.319 this situation. The good news is though, but about a 0:12:46.400 --> 0:12:49.080 year and a half ago, the governor of Floridas signed 0:12:49.120 --> 0:12:52.840 tort reform into law that would stop the process of 0:12:53.000 --> 0:12:57.080 assignment of benefits and also one way attorney fees where 0:12:57.160 --> 0:13:01.880 the insurance company pays the legal fees of the plaintiff. 0:13:02.320 --> 0:13:05.880 A couple of other measures as well were struck down 0:13:06.280 --> 0:13:08.920 by the Torot reform that was signed into law. But 0:13:09.040 --> 0:13:11.320 that was sort of a rare event because in order 0:13:11.320 --> 0:13:13.800 to get that done, it required the President of the 0:13:13.840 --> 0:13:17.000 Florida Senate and the leader of the House and the 0:13:17.040 --> 0:13:20.600 governor pushing in the same direction, and with someone in 0:13:20.640 --> 0:13:24.040 the Florida legislature taking this on to drive it through. 0:13:24.080 --> 0:13:26.840 So this is a situation that you don't get. I mean, 0:13:26.880 --> 0:13:29.040 imagine what if it happened on a national level, would 0:13:29.040 --> 0:13:31.840 have the House and the Senate and the White House 0:13:31.920 --> 0:13:34.640 in the same pushing in the same direction. Not likely, 0:13:34.720 --> 0:13:37.880 But in Florida it happened. Something similar happened in Texas 0:13:37.880 --> 0:13:41.199 about fifteen years ago, and the results of Torot reform 0:13:41.640 --> 0:13:45.600 are already being seen where the number of suits I 0:13:45.679 --> 0:13:50.120 mentioned the seventy eight percent of the national total of 0:13:50.440 --> 0:13:54.720 homeowners insurance litigations Florida, that's coming down, and also there's 0:13:54.760 --> 0:13:58.719 a formal document that announces the intention to sue. Those 0:13:58.800 --> 0:14:01.720 numbers are coming down as well. So Florida seems to 0:14:01.760 --> 0:14:05.360 have turned a corner in terms of the you know, 0:14:05.400 --> 0:14:08.520 whether the sky is falling and the place is uninsurable. 0:14:08.800 --> 0:14:11.720 What does Wall Street say, Well, there's four of those 0:14:12.120 --> 0:14:14.840 Florida only insurance companies. They give us a ticker that 0:14:14.880 --> 0:14:19.440 are that are publicly traded. And when the news was 0:14:19.440 --> 0:14:24.680 coming out of Noah about the approaching hurricanes, people started 0:14:24.720 --> 0:14:28.040 selling the stock of those companies, about twenty five percent 0:14:28.680 --> 0:14:31.920 reduction in the stock price. But when, as you say, Joe, 0:14:31.960 --> 0:14:35.400 it was a disaster averted. It didn't go to Tampa, 0:14:35.480 --> 0:14:39.640 neither Helene nor Milton, and it skewed North or skewed South. 0:14:40.160 --> 0:14:43.680 Stocks rebounded and went up by about fifteen percent. So 0:14:44.160 --> 0:14:48.120 this was really just another manifestation of what people in 0:14:48.160 --> 0:14:52.640 the industry used to say about Florida insurance stocks sell 0:14:52.640 --> 0:14:53.800 in May and go away. 0:14:54.000 --> 0:14:56.520 Wait, can you tell us some of these names? Do 0:14:56.880 --> 0:14:58.560 you have any name? I actually wouldn't want to look 0:14:58.600 --> 0:14:58.880 them up? 0:14:59.360 --> 0:15:00.240 All State would. 0:15:00.520 --> 0:15:02.200 No, No, the Florida specific. 0:15:01.880 --> 0:15:04.200 The Florida Pacific one, Yeah. 0:15:03.920 --> 0:15:09.520 Florida, Yeah, who are they? Heritage HCI, Heritage Insurance Holding. 0:15:09.800 --> 0:15:12.840 Someone needs to make a Florida insurance ETF so we can. 0:15:12.760 --> 0:15:17.280 Just directly get exposure to Oh yeah, there you go. Okay, 0:15:17.440 --> 0:15:18.360 it's still down. 0:15:18.320 --> 0:15:20.760 Down, but it recovered, it didn't continue to go down. 0:15:20.840 --> 0:15:21.440 Yeah, that's right. 0:15:21.480 --> 0:15:25.240 So the rebound when it was a bullet that was 0:15:25.320 --> 0:15:30.920 dodged because Helene went north of Tampa, it landed in Appalachicola, 0:15:31.440 --> 0:15:34.320 and then when Milton was coming and headed towards the 0:15:34.360 --> 0:15:37.080 Tampa Bay, it turned south at the last minute and 0:15:37.120 --> 0:15:41.080 did damage to Sarasota. But in Tampa Saint Pete spared. 0:15:40.920 --> 0:15:44.080 An HCI group. And that's actually at all time highs 0:15:44.200 --> 0:15:47.240 right now, is it. Yeah, So that's and that's actually 0:15:47.240 --> 0:15:49.560 a really interesting chart because it did plunge in the 0:15:49.600 --> 0:15:51.840 middle of October, but now it's currently at all time highs. 0:15:51.840 --> 0:15:53.520 Also, if you zoom out on a lot of these, 0:15:53.560 --> 0:15:55.760 they are up quite a bit over the past year 0:15:55.840 --> 0:15:56.040 or so. 0:15:56.240 --> 0:15:58.400 Oh not quite, by the way, HgI, sorry I miss booked. 0:15:58.440 --> 0:16:00.000 HG has not al time highs. It's it like an 0:16:00.200 --> 0:16:03.120 fifty two weeks high. It was higher in twenty twenty 0:16:03.120 --> 0:16:06.120 one for a while. So okay, But I like looking 0:16:06.160 --> 0:16:08.000 at charts. This helps ground me. 0:16:08.160 --> 0:16:10.360 Joe, stop looking at charts. Let me ask a tort 0:16:10.440 --> 0:16:14.040 reform question. Okay. Tort law. Tort, by the way, for 0:16:14.080 --> 0:16:16.920 those who don't know, is like a legal framework for 0:16:17.040 --> 0:16:20.960 addressing compensation for wrongdoing. It's not criminal stuff, it's the 0:16:20.960 --> 0:16:23.200 civil stuff. And the only reason I know that is 0:16:23.200 --> 0:16:25.560 because I read a book about the station house fire 0:16:26.080 --> 0:16:28.680 in Rhode Island, and that was I don't recommend it. 0:16:28.680 --> 0:16:30.600 It's a good book, but don't read it because it's 0:16:30.640 --> 0:16:34.840 one of the most disturbing cases of all time. But anyway, 0:16:35.320 --> 0:16:38.880 I guess my question is, so tort reform happened in 0:16:38.920 --> 0:16:41.840 Florida a couple of years ago, as you point out, Jerry, 0:16:42.120 --> 0:16:45.840 But what was the turning point at which the state decided, actually, 0:16:45.880 --> 0:16:47.880 this is a really big deal and we need to 0:16:47.960 --> 0:16:48.880 do something about it. 0:16:49.520 --> 0:16:52.000 Yeah, that's a great question. It was, I think when 0:16:52.000 --> 0:16:55.680 it became evident that the number of lawsuits and the 0:16:55.760 --> 0:16:58.400 volume of the lawsuits was getting so stratispheric that it 0:16:58.440 --> 0:17:01.600 was really impacting the balance sheets of the companies that 0:17:01.640 --> 0:17:04.959 were there and driving some to leave Florida, to exit 0:17:05.000 --> 0:17:07.280 the state because they couldn't make a buck there. Why 0:17:07.320 --> 0:17:10.600 stay and you know, throw good money after bad. So 0:17:11.040 --> 0:17:12.800 a couple of years ago, it was at a conference 0:17:12.800 --> 0:17:15.080 of the Florida Chamber of Commerce, and the mood was 0:17:15.119 --> 0:17:18.720 all gloom and doom, and you know, the market is broken. 0:17:19.280 --> 0:17:24.600 There were strains on the reinsure that is obligatory. An 0:17:24.600 --> 0:17:29.040 obligatory reinsure these companies that Joe, you looked up in 0:17:29.280 --> 0:17:30.760 a couple of seconds, I'm very impressed. 0:17:30.960 --> 0:17:33.920 Well, then we have the Bloomberg terminal, oh plug for 0:17:34.080 --> 0:17:36.560 our core product here at Bloomberg. But yeah, it makes 0:17:36.600 --> 0:17:37.200 it very easy. 0:17:37.359 --> 0:17:41.560 So those companies, Heritage, Universal, HgI and the other they're 0:17:41.560 --> 0:17:44.280 aware of the risk. In order to protect their capital, 0:17:44.320 --> 0:17:47.439 they buy a lot of reinsurance, which means that if 0:17:47.920 --> 0:17:51.040 you hear that, oh, Heritage had six hundred million dollars 0:17:51.160 --> 0:17:54.200 in losses or something, well most of that, a lot 0:17:54.200 --> 0:17:57.520 of that, about eighty may ninety percent of that is reinsured. 0:17:57.920 --> 0:18:01.080 So the risk is passed on to these reinsurance companies. 0:18:01.480 --> 0:18:04.840 But the first one that's involved is the Florida Hurricane 0:18:04.840 --> 0:18:12.159 Catastrophe Fund FHC Florida Hurricane Catastrophe Fund. And one of 0:18:12.160 --> 0:18:15.280 the reasons why people were in gloom and doom mood 0:18:15.320 --> 0:18:17.320 a couple of years ago, prior to tour reform is 0:18:17.359 --> 0:18:20.520 because there appeared to be strains on that fund that 0:18:20.560 --> 0:18:23.560 it was How is it funded? It gets the premiums 0:18:23.720 --> 0:18:27.440 from the seedents, a company, a primary insurer like Heritage 0:18:27.680 --> 0:18:32.080 or any other company will seed reinsurance and they pay 0:18:32.119 --> 0:18:35.119 a premium for that and that's the revenue of the fund. 0:18:35.800 --> 0:18:40.200 But because it's a public entity, it was underprising the reinsurance. 0:18:40.240 --> 0:18:45.120 Reinsurance is provided mainly by these mammoth giant reinsurance companies 0:18:45.119 --> 0:18:49.199 in Europe like Hanover Reswiss, Remunich, re score Re, And 0:18:49.320 --> 0:18:54.680 there's also the capital market instruments, catastrophe funds, insurance link securities, 0:18:54.880 --> 0:18:58.560 so third party capital coming in. You've got reinsurance available 0:18:58.600 --> 0:19:02.840 in Bermuda, a big of Florida reinsurance capacity, and also 0:19:02.920 --> 0:19:05.360 Lloyd's of London and less so in the United States. 0:19:05.480 --> 0:19:09.000 So these companies are really protected because they're aware of 0:19:09.040 --> 0:19:13.120 the risk that's there. So the reinsurance picture is one 0:19:13.160 --> 0:19:16.520 that's very important because when you see that a company 0:19:16.560 --> 0:19:18.560 had an X amount of loss, well, what's the net 0:19:18.600 --> 0:19:23.080 loss after reinsurance? It'll be a fraction of the gross 0:19:23.119 --> 0:19:25.399 loss because of the impact of reinsurance. So these are 0:19:25.440 --> 0:19:27.080 like walls around the balance sheet. 0:19:27.119 --> 0:19:31.480 But presumably if the gross losses for like the domestic insurer, 0:19:31.560 --> 0:19:33.800 the first layer of insurance keep going up, then the 0:19:33.800 --> 0:19:36.760 reinsurance premiums go up as well eventually. 0:19:36.880 --> 0:19:39.359 Right, that's right. And here's some other news, which is 0:19:39.880 --> 0:19:44.520 good news. Prior to Helene and Milton, reinsurance rates started 0:19:44.520 --> 0:19:46.960 to come down. Reinsurance rates started to come down. The 0:19:47.240 --> 0:19:51.840 June renewals, the mid year renewals showed some decreases in 0:19:51.920 --> 0:19:55.520 the cost of reinsurance. So whereas there some Henny Penny 0:19:55.960 --> 0:19:59.320 the sky is falling chicken little folks out there saying, oh, 0:20:00.000 --> 0:20:01.879 it's just going to just get more and more expensive. 0:20:01.880 --> 0:20:04.560 It's got nowhere to go but up, and we can't 0:20:04.560 --> 0:20:08.840 buy insurance. Not necessarily, it's not true, because the rate 0:20:09.000 --> 0:20:11.520 or the premium follows the risk that's there. So if 0:20:11.560 --> 0:20:13.760 the risk goes down, then the rates go down. If 0:20:13.800 --> 0:20:16.480 you look at workers compensation, a different line of insurance, 0:20:16.880 --> 0:20:20.280 for the last twelve years, the rates for workers compensation 0:20:20.720 --> 0:20:25.120 have been coming down because of improvements in safety at 0:20:25.320 --> 0:20:30.240 manufacturing plants, other places, automation. So there we have a 0:20:30.320 --> 0:20:33.959 good example of rates coming down because the risk has 0:20:34.040 --> 0:20:37.080 come down. But people like ignore that because it's more 0:20:37.119 --> 0:20:38.880 fun to talk about bad things happening. 0:20:38.920 --> 0:20:43.040 And that's true, that's true. If everything's so fundamentally, I 0:20:43.040 --> 0:20:46.400 guess structurally sound. You know, Wall Street does its thing. 0:20:46.520 --> 0:20:49.120 It assesses the risks of a hurricane, it lays off 0:20:49.160 --> 0:20:52.280 the risks of catastrophes to the catastrophe bonds, et cetera. 0:20:53.080 --> 0:20:56.400 Why does the citizens even need to exist and why 0:20:56.400 --> 0:21:00.480 do so many Florida homeowners either end up with citizens 0:21:01.080 --> 0:21:03.680 or end up just going bare and not having insurance. 0:21:03.760 --> 0:21:08.160 In Florida, the impact of the out of control lawsuit 0:21:08.240 --> 0:21:11.639 abuse is what ended up driving up premium. So that 0:21:11.760 --> 0:21:15.280 was a part from the risk. And this happens in 0:21:15.320 --> 0:21:18.600 another states as well, where you have some sort of 0:21:19.280 --> 0:21:22.320 damage to the private market when the free market is 0:21:22.359 --> 0:21:25.600 having trouble making a decent return, and the insurance industry, 0:21:25.920 --> 0:21:28.560 it's not a rich industry. It's not like other industries. 0:21:28.600 --> 0:21:30.560 The S and P. I think the average margin is 0:21:30.600 --> 0:21:34.040 fourteen percent and the insurance industry is about six percent. 0:21:34.400 --> 0:21:36.960 So it's not as if those are fat rich companies. 0:21:37.200 --> 0:21:41.120 They operated relatively slim margins. So when there is an 0:21:41.160 --> 0:21:45.080 exodus of insurance companies from a particular state, then the 0:21:45.119 --> 0:21:48.440 state will often establish its fund, which is supposed to 0:21:48.480 --> 0:21:52.240 be a temporary stop gap until the market, the private 0:21:52.320 --> 0:21:56.800 market reattains stability. This happened in California with Skiff, the 0:21:56.800 --> 0:22:01.320 state run Workers' Compensation entity, and and other places as 0:22:01.359 --> 0:22:06.200 well have had this sort of accordion type results where 0:22:06.359 --> 0:22:10.800 business expands like citizens expanded a lot, and then you 0:22:10.880 --> 0:22:15.480 have depopulation, which is the effort to take policies out 0:22:15.520 --> 0:22:19.800 of citizens. So depopulation was happening and it is still happening. 0:22:20.640 --> 0:22:23.959 Wait, depopulation efforts to take policies out of citizens. 0:22:24.160 --> 0:22:26.119 That's right to put them back into the private market. 0:22:26.160 --> 0:22:28.920 Because the private market now is out of the intensive 0:22:28.920 --> 0:22:31.560 care unit. It's just in a recovery room. 0:22:32.160 --> 0:22:33.640 What's been the success rate on that. 0:22:33.800 --> 0:22:36.159