By: John Kummer, Vice President, Team FOCUS Insurance Group and former Deputy Insurance Commissioner for the state of Florida.
In the insurance industry, we often hear the terms “Take-Out” and “Take-Out Company.” Below, I provide a high-level overview of the role exposure management plays in balancing risk during this process, and what this means for private insurers and start-ups, using Florida and its Citizens Property Insurance Corporation (Citizens) as an example.
As we know, many states have a state-mandated property insurance plan that provides coverage to individuals and businesses who are unable to obtain insurance in the regular, private market. In Florida, that plan is Citizens.
So, what is a “Take-Out?” This is when a private insurance company “takes out” (or “assumes”) policies from a state-mandated plan. Existing private insurers do this, and some private insurers use these take-outs to start up a new insurance company or Managing General Agency (MGA).
For the private insurer, you must balance your risk through exposure management when taking out these policies.
When assuming policies from Citizens, the private insurer is taking on catastrophe (CAT) risk. To protect their company, they’ll want to make sure to run the policies they’re interested in through various CAT models to best understand the probable maximum loss they could experience in any one given hurricane season. They’ll also need to have both the capital and the reinsurance to be able to sustain that kind of loss, should it occur.
The private insurer’s CAT modeling helps them determine their Probable Maximum Loss (PML). While highly exposed risks may not initially seem appealing, they may actually fit into the company’s PML model and not greatly increase it. Determining the PML depends on the risk, the concentration, where they’re located, the construction, and many other criteria. So, a specific risk isn’t necessarily good or bad. Much like a balanced stock portfolio, the insurer must consider the overall exposure of their risk portfolio and use modeling to determine what balance should yield the best outcome.
Modeling can be a complex and time-consuming process but when done correctly, it will ensure the end-result PML is the right fit for them.
Once a private insurer determines which policies to “take-out” from Citizens (also often referred to as “depopulation”), they follow the process, which is prescribed and regulated by Florida’s Office of Insurance Regulation. Once taken out, the private insurer administers the claims side of the policies while Citizens maintains the premium side until renewal, at which point, it transfers to the private insurer.
If the insurer is a start-up creating its book entirely on these take-outs, there’s still much to consider.
They’ll have a lot of capital committed to just moving the Citizens business over, and their hands will be full dealing with not just the take-out, but also with their stakeholders, investors, reinsurers, brokers, and the other pieces when just starting up. There are, however, two components start-ups – and all private insurers – don’t necessarily have to burden themselves with: policy technology and service team members.
- At Team FOCUS, we have a modern, cloud-based core policy platform, PolicyPort®, that can help administer policies from quote to claim . Custom-built to meet your unique needs, our user-friendly platform provides a better, faster, and more flexible policy management system to support your profitable growth.
- We also offer a service solution team staffed with industry experts who can handle everything from underwriting, to ensuring compliance with regulatory requirements, to agent and policyholder support, claims, renewals, billing, and more. We’ve been a key player in the Florida insurance industry for decades, and we can scale our services up or down based on a company’s current needs at any given time – like during a hurricane – or we can be their entire team, all the time.
- Our services offering can be extremely worthwhile, especially for start-ups. It eliminates their need to find, hire, train, and pay salaries and benefits to a large team when they may not need them right away. It also allows them time to determine which roles they may want to eventually bring in-house over time.
By following sound exposure management practices, these take-out risks and your portfolio can be balanced while providing the protection and peace of mind policyholders deserve.
If you have questions about how to perform a take-out, exposure management, or how to best manage your take-out business once you have it, contact us. We’ve assisted in the formation of 16 insurance carriers, and our decades of experience and expertise will help position you for success.
About John Kummer
Team FOCUS Vice President, John Kummer, began accumulating his insurance expertise immediately after college. After graduation, he joined KPMG Peat Marwick as a CPA, specializing in insurance company auditing and consulting.
After leaving KPMG as a Senior Manager, John joined the Florida Office of Insurance Regulation (OIR). First serving as the Chief Examiner, John eventually became the Deputy Insurance Commissioner. In this prestigious and vital role, John was responsible for all insurance regulation across the state of Florida.
During his time with the Florida OIR, John was instrumental in forming both the Florida Residential Property and Casualty Joint Underwriting Association (now Citizens Property Insurance Corporation) and the Florida Hurricane Catastrophe Fund.
After leaving the Florida OIR, John played a key role in the formation and operation of Florida Family Mutual Insurance Company, one of the first FRPCJUA take-out companies.
John left Florida Family to form Better Insurance Processing Technology (BIPT), which produced the first entirely browser-based policy processing system. BIPT became part of Team FOCUS Insurance Group’s FOCUS Technologies, and the BIPT system was the basis for our current and modern policy administration system, PolicyPort®. John continues to contribute his experience and expertise to the on-going enhancement of this system.
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About Team FOCUS Insurance Group
Team FOCUS Insurance Group: Where innovation meets expertise. For more than 25 years, Team FOCUS Insurance Group has provided carriers and MGAs with the policy management solutions they need so they can FOCUS on growing their business. Our intuitive, agile, SaaS-based policy administration system, PolicyPort®, mitigates risk and drives profitability for our clients. Through our team of experienced Underwriters and service professionals, we also offer end-to-end policy management solutions including agent and policyholder support; claims support (FNOL and CAT); accounting/policyholder billing and check processing/posting; printing/mailing/imaging and more.
Built by insurance professionals for insurance professionals, we’re everything our clients need in one partner – and our FOCUS is their success. Learn more at www.teamfocusins.com.
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