Business Needs
The formation of the Florida Hurricane Catastrophe Fund (FHCF) was triggered by Hurricane Andrew in 1992 which prompted cancellations and non-renewals of property insurance policies. Insurance companies were exiting and threatening to exit the Florida insurance market. FHCF was established to stabilize the market and protect property owners. .
Situation Analysis
Our client, the State Board of Administration of Florida (SBA), was faced with a new statute resulting in the creation of the FHCF. Minimal details were provided on how the fund would be administered and the SBA determined it needed outside expertise to successfully implement the FHCF.
Paragon provided a detailed analysis of how the FHCF could operate following the guidelines set out in the new statute, relying on the broad experience and capabilities of our people while encouraging a creative approach in developing a proposed solution. We were awarded the business due to our comprehensive approach to the program.
Barriers Faced
There were immediate concerns that needed to be addressed, including:
- Original FHCF legislation, because of many factors, was opposed by several insurers and there were multiple legal actions trying to block and/or rescind the formation of the FHCF
- The original legislation was only a few pages long and the SBA faced the challenge of implementing the newly created FHCF, administering a program that required extensive data collection and processing, large volume premium calculation, billing and collections, and claims processing.
Paragon's Actions
Paragon’s immediate actions to address our client concerns were to:
- Help the SBA identify and implement FHCF enhancements that eliminated industry concerns, such as offering deductibles and establishing three different and distinct coverage levels.
- Work with the SBA to establish a much more comprehensive legislation that included rules, forms, and other documents to fully detail and refine the operation of the FHCF.
In order to effectively administer the FHCF, we were tasked with developing a comprehensive database tool that could handle the FHCF’s volume requirements. Paragon utilized its internal actuarial and IT resources to:
- Build a customized database processing, analytical, and storage systems to meet the client’s needs (used internally in our role as Administrator).
- Build a customized Validation Software for the industry to use when compiling their FHCF exposure submissions.
- Build a customized online web-based claims filing system.
- Build and maintain customized database systems used by the SBA in-house.
After fourteen years, Paragon now performs an extensive range of services, many of which are beyond the initial terms of the FHCF contract. Currently, there are over 200 companies that participate in the FHCF. Some of the services performed by Paragon include:
- Collection and processing of over $2.0 trillion of exposure data
- Annual calculation, invoicing, and collection of over $1.3 billion in premium
- Collection, validation, and analysis of insurer loss reports and issuance of reimbursement payments (over 15,000 loss reports processed and over $8.2 billion of payments issued from 2004-2008)
- Database management
- Web site development and maintenance
- Management and financial reporting including monthly, quarterly, and annual financial statements
In addition to our existing contract to administer the FHFC, Paragon has also been contracted by the SBA to provide actuarial services. We are currently in our 13th year on this services agreement. Services provided include:
- Development of the FHCF reimbursement premium formula and actuarially indicated and supported rates
- Defining the analyses and consultative services to be provided by hurricane catastrophe modeling vendors
- Presentation of actuarial findings to the FHCF Advisory Council and other governmental agencies with oversight responsibilities
- Loss reserving services
Results
Paragon has been the administrator of the FHCF since 1994 and is in the third year of another five‑year contract. In 2006, the business went through a government-required formal RFP process in which Paragon was re-awarded the business.
Working closely with the SBA since 1994, Paragon has identified issues, recommended and implemented solutions, and exceeded the SBA’s expectations. Paragon has demonstrated a vast experience and depth of skill in consulting and in providing innovative solutions. This entire process has established a relationship of mutual trust and respect which led to the expansion of Paragon services performed for the SBA.