Prepared Insurance Strategy Shaped by Florida Regulation, Rates

New Florida domestic start-up company, Prepared Insurance Co., is looking to find a profitable place within a state where the insurance commissioner recently said more than 100 residential property insurers were reporting underwriting losses.

Prepared's chief executive, Doug Raucy, told BestWeek the insurer will look to write well-built homes constructed before 2002 -- a "demarcation zone" for many insurers because stringent building codes were implemented in Florida around this time.

"A lot of the carriers have made a decision that (they) are only going to write those newer homes because it's cheaper for reinsurance and it is obvious those homes will perform well in an event," said Raucy. "The issue in Florida, though, is the mitigation credits. The problem is getting the right premiums for those homes."

Mitigation credits in Florida have been widely criticized by the industry. Insurers say the credits are not calculated correctly, and there have also been allegations of fraud involving building inspectors who dole out the credits. In the end, insurers say they are unable to get the premium they need. The credits can "take as much as 90% of the wind premium away," Raucy said.

"If we do get an event -- and even though these [newer] homes will withstand -- they are still going to have damage and there's just not enough premium there to cover them," he said.

Raucy, formerly the chief operating officer of the Institute for Business and Home Safety, said the credits are a "huge factor" why so many companies in the state are reporting losses and why his Tampa, Fla.-based company will look closely at writing newer homes.

Raucy said he thinks "rates are going to start going up" after years of rate suppression in Florida. "Political stability is on the horizon," he said. "We don't have sound rates in Florida but I'm pretty confident we can get there."

With 80% to 85% of homes in Florida built before 2002, Raucy said he continues to see plenty of opportunity to turn a profit in the Sunshine State. In addition, State Farm Florida is looking to leave the property market.

"With the State Farm announcement, there's just more business to be had right now," Raucy said. "I do think it's a terrific opportunity if you get the right business, you get the right rates. It's all about reinsurance, too. What dictates those reinsurance rates is the soundness and the quality of your book of business. That will translate into lower reinsurance rates and then you've got a chance at being profitable."

Opportunity also could come from other Florida insurers who might be in trouble. Raucy said "a lot" of insurers have contacted Prepared and "asked us to help them by assuming some of their policies, so we're in a position where we can obtain a lot of business pretty quickly."

Prepared intends to be a voluntary market company with policies distributed throughout the state by independent agents.