“This is the Essence of What the Guaranty Funds Exist to Do…” – Brad Roeber
Executive Director, CIGA
One of the highlights of the 2019 Fall Workshop was a panel entitled, Disaster Sight: Listening to History for Creative Problem Solving. Among the panelists was Brad Roeber, Executive Director of the California Insurance Guarantee Association (CIGA). Mr. Roeber gave a brief overview regarding a creative solution he employed in late 2018 when it came to the liquidation of Merced Property & Casualty Company, a small California Central Valley insurer impacted by the California wildfires. This is a closer look at that situation as well as a challenge from Mr. Roeber to all Guaranty Funds to secure the future of the system by leveraging creativity as well as compassion.
Robin Webb, NCIGF Communications & Member Support Manager: Brad, you’re the current Executive Director over at CIGA, tell me about stepping into that role as a former Industry representative.
Brad Roeber, Executive Director, CIGA: I served on the NCIGF Board as an industry member for a number of years so I have a fairly unique point of view, especially given that I ended up choosing to work with the guaranty funds for a living, now being the CIGA executive director. I believe in the mission very much and I thought that, at this time in our history, there was an opportunity to lead in a different way. We exist solely to serve consumers who have no place else to go. Everything that I’m doing and everything I’m encouraging my employees to do is to think about the people that are sitting there with nothing…whether it’s an injured worker in the comp world or it’s a claimant of a non-standard auto insured who has gone down or the folks up in Paradise, California who, in one day, lost everything and then a few weeks later, lost their insurance too.
Robin: And you’d only been in your role a short time when the California wildfires tore through this heavily wooded area in the Butte County? Tell me about getting creative when it came to helping those claimants from Merced who lost their homes.
Brad: Yes. Whether you call it creative solutions or just finding answers where maybe there are no obvious ones, to me that’s what we need to do. I’m not the first person who’s hired existing staff to handle an insolvency, but it goes beyond that. Now we’re leveraging those people [from Merced] who did a great job for us to do more work and keep them on the payroll longer, so there is an economic value to how we handled it. And, talking about Merced specifically, we are going to handle that estate with an administrative expense load that’s exceptionally low. And that is because we didn’t have to pay southern California salaries to those folks, and we didn’t have to pay the overhead of southern California. We paid the overhead in a little farm town in the middle of the agricultural part of the state. There are all kind of little savings like that just from being open to new possibilities. And like I’ve said, utilizing existing staff is not a new idea, but I think the way we leveraged it in this particular case was a little different.
Robin: Take us back to the very beginning. What happened with Merced?
Brad: The story of Merced is a pretty simple one. I had gotten here at the end of September 2018 and on November 8th, the fire starts. We got a call saying that there was this little central valley carrier that was a hundred years old and it was likely to go under. Most of their book of business was property and so it was pretty clear that something was going to go down. As it turns out, some of their employees knew within a week that they were done because the company had about $30 million in assets and the exposure was within the $100million range. So, we knew…it’s going to go.
Robin: In your time in the insurance world, had you ever experienced a disaster like this?
Brad: One of the things that was interesting here, and it’s a good lesson for the future of the guaranty funds, was I was among just a few people at CIGA that had ever actually been involved in a property disaster and had adjusted property claims. My experience, a lot of which was in the Midwest, was with tornadoes and things of that nature. I had been on site in multiple places where a tornado had ripped through and the houses were completely gone. There was one that happened a little east of Peoria a few years back where people were sitting at home on a Sunday morning eating breakfast and the next thing they know, the alarm is going off, they are running to the basement and the house is just gone. So, I had some pretty unique experience around those types of situations and adjusting those property claims.
Robin: When you heard about Merced, what was your first step?
Brad: I decided to go up there and see the people (and this was before the liquidation order). I went up to the Merced offices and talked with the claims staff and told them that it appeared that the company is in trouble but that the guaranty funds are the backstop for it and at CIGA I didn’t have anybody that knows how to adjust claims on property…so, would you be willing to work with us? We tried to be creative about engaging them and we set up a ‘stay bonus’ system to reward them if they stayed until the end of the insolvency.
We had our people lined up to handle everything and then it started. We went to work and began adjusting the claims. The fire had started on November 8th and right after Thanksgiving the fire finally got put out, so it burned fully for about three weeks. Then, on December 3rd the company was declared insolvent. Because of the pre-planning we had done and the fact that there was not a huge number of claims, we actually started issuing checks on that Friday, December 7th. The next week, in earnest, we were producing more checks for those folks, allowing the coverage gap to be minimal, almost nonexistent.
Robin: You mentioned specifically some creative solutions in regard to claim caps, tell me more about that.
Brad: The CIGA statute says that we could pay a maximum of $500,000 per claim for non-workers compensation claims. We talked in advance with our counsel and discussed the option of looking at the caps differently. Instead of one homeowner’s claim, we look at the homeowner’s policy in multiple parts where there are four basic coverages – dwelling, structures, contents and additional living expenses. We developed the option of treating this as four claims as opposed to one single claim.
Robin: Why was this solution so important to you?
Brad: This is the lens I was looking through: If we don’t find a creative way to deal with this part of it, then we will not represent the insurance industry as a safety net. Because of this four-coverage approach, we were able to cover the entirety of people’s claims with the exception of just a few (maybe 30-40 whose domicile exceeded the $500,000 cap). It created a productive solution out of a situation that was really awful for these people. It allowed them to move on with their lives.
Robin: And there was another area, the contents portion of the coverage, that you dealt with pretty swiftly as well, right?
Brad: Yes. When you adjust a property claim and there is contents damage, typically it’s handled by the consumer providing an inventory and the adjuster going through the list of all of the homeowner’s items and coming up with a cash value for all of those items. Then, when the consumer actually goes out and purchases those items, they provide proof, and only then can they be paid the difference. Obviously, it’s a pretty arduous process. Well, we decided to offer to pay eighty percent of whatever the contents coverage amount was, without an inventory. No questions asked. Again, that piece of it, that type of solution had been done before but not very often and not so efficiently or at such a high percentage amount. And with the exception of just a handful of claimants, we have had no complaints.
Robin: Where did the Merced employees end up?
Brad: We’ve given them additional work to do. We have other work that had been done by third-party administrators and I’m starting to feed them additional files to adjust. It saves us money and also keeps them employed. We wanted to reward them for being loyal to us and seeing this insolvency through to the end.
Robin: Thank you for sharing that story. It’s incredibly compelling.
Brad: It’s important to remember that this is not a tale of woe. This is not a story about a bunch of greedy insurance companies who try to do the wrong thing. This is a group of really well-intentioned people who have gotten educated and want to do a better job for the policyholders. The guaranty funds were there. We served these people who literally had no place else to go.
Robin: How do you balance the idea of going above and beyond to some who maybe have the mindset of not being a charity organization or taking up the mantle that their job is, in fact, to minimize the claims they pay?
Brad: I’m compelled because I’ve been on a disaster site before. The first time I went to a disaster site and looked into the eyes of one of my customers who had lost everything, that was a seminal moment for me almost fifteen years ago. At the time, I had forgotten why I’d gotten into the business – I had gotten caught up in making money and driving combined ratio and cutting claims cost and all of those things. I realized then that it wasn’t about any of that. It was about doing the right thing and taking care of these people. That was the promise. When you think about NCIGF, it’s about the promise. The promise isn’t that we make a lot of money…if it happens, then that’s great. But the promise is that we take care of people when they’ve lost everything and have no place else to go. It is a noble business.