Carmel startup wades into Florida hurricane market: Firm pioneers product to cover insurance deductibles

The turbulent winds that hit the property-casualty insurance market after the destructive Gulf Coast hurricanes of 2004 and 2005 have blown over Indiana with hardly a bent weather vane.

But that hasn’t stopped a new Carmel company from trying to make a buck helping Florida homeowners and businesses handle their now-staggering insurance costs.

This month, Citon Group Inc. started marketing its new breed of insurance-designed to cover hurricane deductibles-to Florida insurance agents.

“We’re really at the very beginning of this. But it’s very promising,” said Citon President Steve Alonso. Alonso was CEO of Carmel-based Oak Street Mortgage LLC, the once fast-growing Carmel-based lender that the mortgage crisis sent tumbling into bankruptcy last year.

Alonso joined Citon in December to help company founder and CEO Ken Gregg ramp up growth.

And Citon has big plans. In May, it promised the city of Carmel that by 2017 it would add 100 jobs paying an average of $60,000 apiece. Carmel gave the company a tax abatement valued at $25,000.

Gregg, a Florida native, got the idea for the new insurance while talking to friends about how hurricane insurance premiums and deductibles had spiked in Florida.

He spent two years developing a product, talking to actuaries and reinsurers, and doing market research.

“We had to go out and prove a lot of things,” Gregg said, adding, “The insurance industry’s not used to different products.”

Citon’s Zero Select Wind Deductible Elimination Plan, which Gregg calls the first policy of its kind, pays the entire deductible for hurricane and wind damage on residential and commercial property.

In coastal states, such hurricane deductibles are separate from a homeowner’s or a business’s insurance deductible for fire, hail or any other kind of damage.

Hurricanes have always been a problem for the Gulf Coast states. But the damage hit unprecedented levels in 2004, when four hurricanes lashed Florida, causing $10.7 billion in damage, according to documents filed with the Florida Office of Insurance Regulation.

In 2005, Hurricanes Katrina, Rita and Wilma smashed into the Gulf Coast, causing another $7 billion in damage in Florida alone.

Those back-to-back losses caused insurers to alter their actuarial calculations. In addition, weather forecasters predict a higher number of hurricanes in future years.

Those changes spiked premiums for some property owners in Florida more than 100 percent, said Jeff Grady, CEO of the Florida Association of Insurance Agents. But premiums have trended down in the last two years, he said, after the Florida Legislature put pressure on insurers’ premiums and regulated the size of homeowners’ hurricane deductibles.

That has tamped down some of the potential demand for a hurricane-deductible insurance product, he said.

“I’ve not heard a lot of people clamoring for that kind of product because prices have been falling here lately,” Grady said. But more storms could change that. “It’s sort of out of sight, out of mind.”

Florida property insurers have stopped offering flat-dollar deductibles and switched to deductibles based on the value of a property. Those percentages typically range from 2 percent to 10 percent of a property’s value.

So, a 5-percent deductible on a $1 million house means the owner will pay at least $50,000 to cover damages before an insurer steps in. For a business with a large warehouse full of expensive equipment, its exposure could run into the millions.

“We have quotes as low as $5,000 and as high as $17 million,” Gregg said.

Citon’s product pays for damage sustained in any hurricane or tropical storm. Storms achieve that status, and are given a name, if their wind forces reach 18 meters per second, said Taoyong Peng, a scientific officer in the tropical cyclone programme division of the World Meteorological Organization in Geneva.

Next year, Citon plans to introduce its hurricane-deductible insurance to other Gulf Coast states, and eventually to Atlantic Coast states as well. Gregg also said he’s working to develop three or four other products.

“We have some aggressive areas of growth,” Gregg said. The company has already signed up 500 agents in Florida.

Citon also has raised private capital. Its investors include Joe Huffine, who runs an Indianapolis consulting firm, and McCordsville resident Rick Stanley, who is CEO of Manchester Inc., a national used car and financing company.

Citon also got access to unused reserve funds held by a subsidiary of Texas-based Hallmark Financial Services Inc.

“There’s an excitement about this product,” Alonso said.