Need for focused claims procedures, practices, and protocols and adequate loss reserves

Columbus, Ohio, July 3, 2018: In Nicon Construction v. Homeowners Choice Prop. & Cas. Ins. Co., (2d DCA May 11, 2018), the District Court of Appeal of Florida, Second District, upheld an insured’s right to assign policy benefits to multiple parties.  The insured assigned policy benefits to two service providers.  The first Assignment of Benefits addressed water and debris removal.  The second related to asbestos remediation.

Homeowners Choice Property and Casualty Insurance Company argued that the first assignment was for “any and all” benefits and therefore, the second assignment was invalid since there were no further rights under the policy to assign. The appellate court disagreed.  It held that the intent of the assignment, when construed as a whole, was to assign benefits to the provider for the services performed by that provider, not all the rights to payment for the entire claim.

A critical component of Demotech’s quarterly review and analysis process is monitoring the adequacy of the loss and loss adjustment expense reserves carried in the balance sheet of an insurer.  We also monitor the quality and quantity of reinsurance protection including vertical and horizontal catastrophe reinsurance purchases to review the ability of the insurer to respond to the aggregate value of meritorious claims.  However, once the quality and quantity of reinsurance has been validated, it is the adequacy of net balance sheet loss and loss adjustment expense reserves that impacts the financial stability of insurers.

If an insurer’s current claims procedures, practices, and protocols have not resulted in neutral or favorable loss and loss adjustment expense reserve development in previously submitted financial statements, it is unlikely that those same claims procedures, practices, and protocols can respond to the Nicon decision’s impact on an already challenging claims environment.  As such, Demotech will be contacting all rated carriers operating in Florida to discuss their loss and loss adjustment expense reserve position and share our perspective.  This process will be completed by July 31, 2018.

As we expect certain carriers will need to infuse capital, strengthen loss and loss adjustment expense reserves, or otherwise assuage our concerns related to a claim settlement environment exacerbated by the Nicon case. Downgrades and affirmations will be released on August 2, 2018.

About Demotech, Inc.

Demotech, Inc. is a financial analysis firm specializing in evaluating the financial stability of regional and specialty insurers.  Since 1985, Demotech has served the insurance industry by assigning accurate, reliable, and proven Financial Stability Ratings® (FSRs) to Property & Casualty insurers and Title underwriters.  Demotech’s philosophy is to review and evaluate insurers based on their area of focus and the execution of their business model rather than solely on financial size.  Visit for more information.