Unlike restaurants, bars, salons and gyms, insurance companies didn’t shut down at the beginning of the COVID-19 pandemic. They’re not facing uncertain futures like many businesses that depend on retail traffic. And no matter how they were financially affected, their customers can’t avoid buying their product.
And yet, thousands of insurance businesses in Florida and the U.S. have taken advantage of Payment Protection Program funds, securing hundreds of millions of dollars in potentially forgivable loans.
As with other lucrative businesses that have availed themselves of the money, consumers are justified in asking whether insurance companies really needed it or were merely taking advantage of an opportunity to pad their bottom lines, said Sarah Crozier, senior communications manager at Main Street Alliance, a national small-business advocacy organization.
“It gets to the core question of ‘What’s the PPP money for?‘” Crozier said in an interview. “Is it truly for small businesses that are suffering? In many industries, as we’ve seen, companies that are not suffering have accessed these funds. Adding extra salt to the wound is when small businesses that have been denied claims by insurance companies see how many of these loans went to this industry, while they’ve been pushed to the back of the line.”
Insurers, however, say the pandemic has affected them financially in numerous ways and they had every right to secure the relief funds to protect their workers and their businesses from an uncertain future.
The loans were made available under the $2.2 trillion Coronavirus Aid, Relief and Economic Security Act enacted in March. The program was intended to help vulnerable businesses with fewer than 500 employees stay afloat and avoid having to lay off workers.
In Florida, 9,321 companies identified as insurance-related by their North American Industry Classification System code secured pandemic relief loans of up to $150,000 each totaling $288.7 million, according to a South Florida Sun Sentinel analysis of data released last week by the Small Business Administration.
Another 950 insurance-related companies secured PPP loans of $150,000 or more, the data shows. While the SBA data specifies only ranges and not specific loan amounts for each of these higher-value loans, their total fell between $391.8 million and $934.6 million.
Companies that received the loans provide a wide range of insurance services. They include property and casualty carriers, agencies and brokerages, health and medical insurance carriers, life insurance carriers, claims adjusters, collection agencies, insurance financing companies, consulting services and insurance fund administrators.
Of companies that secured loans of $150,000 or more, 43 were property and casualty insurers with tens of millions of dollars in capital assets. Together they obtained between $29.95 million and $69.1 million, the SBA data shows. Another 165 property and casualty insurers secured loans of up to $150,000 totaling $6.5 million.
Among them are some of the most common names in Florida’s insurance industry:
Security First Managers LLC, based in Ormond Beach, parent of Security First Insurance Co. ($5 million to $10 million).
Seeman Holtz Property and Casualty LLC , based in Boca Raton ($5 million to $10 million).
Florida Peninsula Holdings LLC, parent of Boca Raton-based Florida Peninsula Insurance ($2 million to $5 million).
People Trust Insurance Co., based in Deerfield Beach ($2 million to $5 million).
Miami-based United Automobile Insurance Co. ($2 million to $5 million).
Insurance agencies and brokerages also took substantial amounts of the federal relief money. The data shows that 6,097 agencies and brokerages secured a total $191.7 million in loans of up to $150,000, while 399 secured loans of $150,000 or more totaling between $120.1 million and $291.5 million.
The insurers had plenty of company among loan recipients. In South Florida, millions of dollars were provided to auto dealers, large law firms, private schools, restaurant chains, banks, accounting firms, transportation companies and nonprofits.
The SBA’s data shows that 42,207 Florida companies of all types took loans of $150,000 or more. Another 305,809 companies took loans of up to $150,000 totaling $10.7 billion.
Did they really need the funds?
To what extent the insurance industry was vulnerable to effects of the pandemic is debatable.
Speaking in his publicly traded company’s first-quarter earnings call in May, Heritage Insurance Holdings CEO Bruce Lucas downplayed the pandemic’s potential impact on his company. Homeowner insurance, he said, is a “highly resilient” business.
“Our products are essentially a must-have for all homeowners, renters and landlords regardless of economic conditions. We did not see a drop-off in sales in March, and new business sales in April set a new monthly record for the company,” Lucas said. He added, “There is no guarantee that these trends continue, particularly in an uncertain and volatile macroeconomic environment, but we have weathered the storm incredibly well so far.”
The company has not yet released its earnings report for the second quarter, which ended June 30. In an email, Lucas said that Heritage considered taking Payment Protection Program funds but decided against it.
“Heritage is profitable and we have not laid off any employees,” he said. “As a result, we thought the program would be more useful if it served small businesses that were suffering much worse than Heritage.”
Meanwhile, executives of companies identified in the SBA data who were willing to speak publicly about why they took the loans said it would be a mistake to assume that the COVID-19 pandemic has not affected the insurance industry.
Amy Rosen, chief marketing officer for People’s Trust Insurance, pointed out that property and casualty companies have been directly affected by 15% to 50% increases in costs for reinsurance -- which is basically insurance that insurers must buy to ensure they can pay all claims after a catastrophe.
Although reinsurance costs were set to increase for the current storm season because of increased hurricane-related claims and attorney-fueled claims abuses over recent years, this year reinsurers sought even higher price increases because of projected effects of the pandemic, Rosen said.
“All carriers in the state are negatively impacted by the rise in reinsurance costs this year,” Rosen said. “As a way to mitigate this sharp cost increase, some carriers have chosen to take advantage of the PPP loan as a way to ensure their financial strength and maintain a solid financial base.”
Michael Millette, managing partner of Hudson Structured Capital Management, which is in the process of becoming the majority shareholder of Coral Gables-based Weston Insurance Co., said Heritage’s Lucas is correct in stating that the core homeowner insurance business “has not to our knowledge experienced serious coronavirus-related losses.”
However, Milllette said, a significant number of insurers have experienced hardship in their commercial insurance lines, declines in earnings from their investment portfolios resulting from pandemic-related losses in the stock market, and an inability to raise capital because of uncertainties tied to the crisis.
In addition, some companies spent considerable money upgrading their technology systems to enable their employees to work from home, said Paul Handerhan, senior vice president for public policy at the Fort Lauderdale-based Federal Association for Insurance Reform, a consumer-focused insurance watchdog group.
Hardships lie ahead
Future hardships are certain for the industry, Millette said. “The insurance industry as a whole is likely to experience the largest dollar loss in history from the coronavirus due to effects ranging from trade credit insurance [which protects traders from losses due to non-payment] to workers’ compensation to liability [of] commercial property to mortgage insurance,” he said.
Prepared Insurance Co., based in the Tampa Bay area, decided to apply for a loan worth between $350,000 to $1 million early in the pandemic as it “was analyzing the potential short, mid- and long-term effects of the COVID-19 disruption,” said Patrick White, majority owner of parent Prepared Holdings LLC.
In addition to reinsurance price hikes, the industry is still bracing for other effects, such as increased foreclosures, potential premium forbearance requirements by state governments, and further stock market disruptions, White said.
And, he said, “we are in the very beginning of what is predicted to be an active hurricane season. The security of capital and cash flow should be at the forefront of all [insurers'] minds, and I think it is prudent in light of the macroeconomic environment to participate in a program like PPP. We need to have a solvent and stable workforce for our policyholders.”
Jobs were saved
Although Prepared’s employees have been working remotely since March 17, no jobs have been eliminated at the company “in part due to the benefit of the PPP loan,” White said.
Under terms of the federal program, Paycheck Protection Program loans will be forgiven if businesses can document that they maintained at least 75% of their total salaries over periods of eight or 24 weeks.
SBA data include numbers of employees that recipients pledged to save with the money. In Florida, the 950 insurance-related companies that secured loans of $150,000 or more pledged to preserve 41,137 jobs. The 9,321 insurance-related companies that secured loans of less than $150,000 pledged to preserve 31,038 jobs.
The 6,496 insurance agencies and brokerages that received loans pledged to save 28,034 jobs. Many of those are smaller mom-and-pop businesses that feared loss of business from the pandemic’s effects on home sales and new construction, Handerhan noted.
Across the industry, jobs preserved by the loans included inspectors and adjusters who might have otherwise been sidelined because they’ve been unable to inspect properties in person, he said.
Handerhan said he can understand why those companies would seek the funds to keep their employees.
“I don’t think there’s anything nefarious about these companies getting dollars,” he said.
(c)2020 the Sun Sentinel (Fort Lauderdale, Fla.)
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