By Jeff Grady
That’s what agents are probably asking themselves after hearing the testimony of Capitol Preferred Insurance Company’s (also Southern Fidelity) CEO, Jimmy Graganella when he appeared before the Senate Banking & Insurance Committee yesterday in Tallahassee. Most of the committee’s time was reserved for discussion on Citizens reform measures proposed before the 2013 Florida Legislature. Incredibly, when Mr. Graganella finally received his turn at the podium, he quickly made the following statement about agents who place business with Citizens,
“Reducing commission is a very good incentive. You don’t pay them commissions, they are not going to put policies there (Citizens). So, I am in support of all that…”
To see Mr. Graganella’s entire testimony, which begins approximately 91 minutes into the meeting, watch the testimony on the Florida Senate's website.
Mr. Graganella’s absurdly reckless statement was in response to Senator Gwen Margolis’s (D-Dade) earlier recommendation to reduce Citizens’ policy count by eliminating agent commissions. The senator went on to suggest that agents are likely being paid 15–20 percent and if Citizens stopped paying commissions, agents would find another place for the business. Obviously, Senator Margolis, who ironically is insured by Citizens for wind, is poorly informed about agent commissions and the reasons consumers generally find their way to the state owned property insurer. FAIA is providing the senator with additional information to assist her understanding of these issues.
Mr. Graganella however, is a self-proclaimed “expert” in the Florida property market, so his comments are far more troubling. With that in mind let’s examine his public statement a little more closely.
He used the term “agents” and in doing so, implicated all agents – independent and captive. He urged Senators to eliminate commissions for Citizens agents and since he made no distinction between the various lines of coverage, his recommendation covered all Citizens’ accounts—PLA, Coastal, Commercial Residential and Commercial.
Does he really believe that Citizens would have no policies if agents weren’t paid commissions? If his answer is yes, then he must also be committed to the belief that his companies and others like it are willing to write all of Florida’s coastal wind, older homes, mobile homes, sinkhole prone properties, condo associations etc. If he’s unwilling to make this commitment, then his comments are extremely hypocritical and worse yet, he believes agents should work for free. I wonder if Mr. Graganella, his investors and his associates work for free?
Mr. Graganella’s company formed a retail insurance agency a few years ago, which essentially competes with the very same agents he appoints. If Capitol Preferred’s agency writes a policy for Citizens because no private market is willing to offer coverage, does he believe they should work for free?
Mr. Graganella publicly stated that agents are improperly incented, or said another way, are being over compensated, for the work they perform for consumers who can’t find coverage with his company or others like it. Perhaps it would be a good exercise to make comparisons. FAIA can easily demonstrate that Citizens pays the lowest rate of commission in the industry, highlighted by a pathetic Dade county PLA commission rate of 5.5 percent (effective). I wonder if Capitol Preferred would be willing to disclose what it makes on Citizens takeout policies, including the $25 MGA fee it charges on each renewal. It’s notable that Mr. Graganella mentioned during his testimony that he plans on forming a fourth company, presumably via a Citizens takeout. That suggests the gettin’ is pretty good on the company’s recent takeout activity, especially with an additional 16 points of ceding commission thrown in for incentive and no requirement to even renew the business. Either that or maybe, just maybe, Mr. Graganella and his investors are doing it all for free.
During his “expert testimony,” Mr. Graganella also lamented the cost of reinsurance to private insurers, stating that it absorbs between 40-52 percent of the premium. Further, he recommended the Florida Senate should authorize Citizens to provide depopulation incentives to take-out companies by subsidizing their cost of reinsurance. Hmmm…isn’t the required amount of reinsurance a function of how much risk the company can retain on the exposure it chooses to insure? And isn’t a company’s retention a function of its accumulated surplus? Before the Florida Senate, Citizens, OIR or any other government body considers Mr. Graganella’s recommendation, perhaps they should carefully examine whether Capitol Preferred’s gross earnings are adequately contributing to its surplus. In other words, how much of the company’s earnings are being siphoned off through its internally owned MGA and returned to investors? It seems that question needs to be answered before asking Citizens to subsidize its cost of reinsurance.
Comments like those of Mr. Graganella only add fuel to the ongoing examination FAIA is performing on Florida’s private residential property insurance market. Increasingly, the association is receiving complaints from agents about declining compensation, archaic policy administration technology, RCE manipulation, coverage reductions, bad claims practices, etc. Ultimately, it will boil down to the question of “who is being served…consumers, agents or companies?” For the system to work, it must be all three. Anything less and FAIA’s mission requires that a fix be found—through all means necessary.
P.S. As independent agents can clearly see, folks like Mr. Graganella are speaking for them to legislators. While you can be assured FAIA lobbyists are busy refuting his harmful remarks, there is no substitute for the voice of an agent. I strongly urge you to register today for FAIA’s Legislative Fly-in on March 19–20 and speak for yourself!