As any longtime resident of Florida can attest, 1992 to 2005 proved to be an especially brutal stretch for hurricanes as the state was hit by seven storms ranging in severity from category 3 to 5. In addition to the unimaginable human toll, these storms also caused billions of dollars in damages to homes, businesses, farmland and local infrastructure.
Fearful of incurring more losses in future storms, the nation’s major insurance carriers pulled out of the Sunshine State’s homeowners’ insurance market altogether, leaving a void.
A major part of this void was subsequently filled by the state-run Citizens Property Insurance Company, which promptly exploded in size as it issued more and more policies to homeowners whose insurance companies had fled the state.
Eager to downsize Citizens, which currently has a 14.5 percent market share, state officials have been urging more private insurance companies to come back to Florida, which hasn’t seen a major storm in close to a decade.
However, the insurance companies that have lead the revival of the state’s homeowners’ insurance market haven’t been the major carriers, which claim that the state’s mandated rates are too low to make such reentry profitable, but rather small, local companies that many experts say may be ill-equipped to handle the financial fallout from a major hurricane.
“This is an accident waiting to happen,” said one senior financial analyst with Weiss, a national consumer-focused rating agency.
Indeed, Weiss recently completed a comprehensive analysis of 48 private companies here in Florida that collectively account for 66 percent of all homeowners’ insurance premiums paid by state residents, an amount totaling nearly $6 billion a year.
Somewhat shockingly, the median grade awarded by Weiss to these companies was a C-minus, while 19 were awarded grades of D-plus or below, meaning they presented a very high-risk to consumers.
While the insurance industry has indicated that these ratings don’t reflect the reality and that no claims have ever left unpaid even after insurance companies have shuttered their operations thanks to other companies taking over the polices, Weiss officials counter that this means nothing to a homeowner facing a total loss.
“If your insurer fails when you need to make a claim, that is a disaster from the consumer perspective,” said one official. “You need the claim paid right away, not by some other entity down the road.”
What are your thoughts on this story?
Source: Reuters, “Florida’s new insurance sector may be ‘accident waiting to happen,'” Barbara Liston, Sept. 11, 2014Share