The largest agent organization in the state, the Florida Association of Insurance Agents, has made the historic decision to invest in a fledgling insurance company in an effort to keep agents competitive and expand the market’s capacity in Florida.

Executives from the FAIA and Sypher Insurance, the tech-heavy reciprocal homeowners insurer set to begin later this year, described the investment as “impactful” and “significant,” though they would not disclose the exact sum. Sypher intends to raise at least $35 million prior to its November debut date, and FAIA will be a minority investor in the company.

“Overall, I think it’s a good thing,” said Rob Norberg, the proprietor of the Lantana, Florida-based Arden Insurance Associates firm.

Leaders in the state and federal industries stated they were unaware of any agents or agency groupings making an investment in a carrier in the United States. However, according to organization president Kyle Ulrich, it made sense for the 2,000-member FAIA to act independently in Florida, a market currently dealing with significant loss expenses, skyrocketing premiums, and the departure of several carriers in recent years.

“Our mission at the association is to promote the growth and perpetuation of independent agents,” Ulrich said this week. “If there are companies committed to that distribution channel then it behooves us to help them do that.”

The association’s board of directors has actually met with several businesses and has been debating this kind of relationship for the previous few years. Sypher approached FAIA leadership and then made a case to the board only a few weeks ago.

“There was a lot of vetting, a lot of meetings, a lot of questions, but in the end, they said, ‘absolutely, this is a game changer and we would like to get behind you guys,’ ” Crystal McInnis, chief revenue officer for Sypher, said in an interview with Insurance Journal.

The Florida insurance industry and FAIA members are familiar with McInnis and other executives from Sypher that are based in Orlando. As a reinsurance advisor and consultant, Sypher has established a solid reputation, having secured coverage for several Florida carriers. Prior to starting Sypher, CEO Subhashish Dutta held positions as managing director and head of R&D at Guy Carpenter and co-founded the asset management company Gemini Re, which deals with insurance-linked securities.

Laura Johnson, chief product and underwriting officer, and Katelyn Elsemiller, director of underwriting for Sypher, both spent a few years working for Olympus Insurance in Florida.

Sypher does not intend to base its business on takeouts from the state-created Citizens Property Insurance Corp., in contrast to other recent companies in Florida. Some agents may find that relieving, as they have expressed that takeouts can be time-consuming and demanding, particularly in cases where policyholders refuse to convert.

According to Johnson and McInnis, Sypher will take an organic growth strategy, aiming to have 20,000 policies in effect within a year after debut.

In addition, Dutta stated that although the company will maintain human agents at the center of its operations, it will also extensively rely on AI and machine learning for everything from quote generation and binding to claims processing and underwriting, as well as for understanding which coverages to avoid. He mentioned that stakeholder communications will also be produced using machine learning and human monitoring.

In order to enhance results, Sypher will also be laser-focused on a multitude of data points, such as assessing adjuster performance, identifying bad actors, and figuring out the claim life cycle.

“The industry has been two steps behind on identifying loss trends that are really affecting things,” McInnis noted. “With data and machine learning we hope to see, in real time, what are the outliers? Is something an anomaly or is it becoming a trend?”

In light of what certain Florida carriers have included into their policies for the past two years, the reciprocal has no intention of requiring binding arbitration to resolve claims disputes. However, officials would not say how detailed or comprehensive the roof affirmations of Sypher policies might be. In recent years, a number of Florida carriers tightened their roof endorsement policies, limiting coverage for roofs older than ten years.

How many agents will be appointed with Sypher is another important topic. According to McInnis and Dutta, the business will take its time making appointments but will set aside a specific amount of capacity for FAIA’s IMS Market Access program for agents.

“We want add to agents as we go and slowly build the end force rather than run out of capacity in three months, which you often see with startups,” McInnis noted.

A few days before the Florida Office of Insurance Regulation released a bulletin indicating that eight new property/casualty carriers had been approved in the previous 18 months, things were beginning to improve in the long-stressed Florida market, the news about Sypher broke.

However, Norberg, the owner of the south Florida agency, noted that not all of those businesses allow agents to write for free, which restricts their potential to assist thousands of homeowners in need.

He declared, “To truly get us back to a good and competitive market, you need to have open writing.”

It appears that the FAIA’s investment in Sypher is not the result of a desperate attempt to save insurance agents from automation, online quotation, and direct distribution. From 33,360 in 2020 to over 39,430 in 2022, Florida has had a considerable increase in the number of insurance brokers, according to data from the U.S. Bureau of Labor Statistics.

Leaders of Sypher and agencies contend that using agents is a better approach to screen assets, increase sales, and distribute products. And the secret to agent expansion in the competitive Florida market is more capacity.

“There’s no greater need for our members at the moment than capacity in Florida,” Ulrich said.

In the upcoming months, Sypher, a word play that implies the business is “cracking the code” of the challenging Florida market, plans to apply for a certificate of authority. By the fourth quarter of this year, the company hopes to have secured all necessary approvals and secured funding, according to Dutta.

That will occur at the end of what is anticipated to be a very active hurricane season and about two years after lawmakers in Florida passed legislation aimed at curbing bogus roof claims and runaway claims litigation, which some insurance companies have blamed for decimating their profit margins. Chief product officer for Sypher Johnson responded, “Let the legislation take its course,” when asked if more legislation was required to turn around the Florida ship. We don’t require repair after fix after fix after fix. The Legislature took a very significant action. Give it time to work.

Concurrently with Sypher, other possible entrants into the Florida market are also raising capital. Anchor Property & Casualty Insurance Co. intends to make a comeback this year after going into an orderly runoff in 2020. CEO John Rollins stated last week that all the elements seem to be coming together for a launch sometime before the end of the year, but no specific date having been chosen.