Although there were no hurricanes in Florida in 2009, there was plenty of news from Florida homeowners insurance companies.
For starters, almost 50% of all active Florida home insurance companies lost money in 2008, a year in which there were no major storms. Many businesses continued to experience losses in 2009. Reasons for these losses include lower revenues due to inadequate Florida home insurance rates along with rising expenses.
As 2009 progressed, two Florida home insurance companies went bankrupt and were placed in receivership by the state after their cash reserves fell below required minimum levels.
Homeowners insurance companies failing during non-hurricane years should spark fear and panic across the state. Because? Because if these companies can’t make money in hurricane-free years, the odds increase dramatically that they won’t be able to accumulate enough cash to pay your claim after a major Florida hurricane.
A closer inspection of the company that went bankrupt in the spring of 2009 reveals disturbing trends that could affect other Florida home insurance companies in the future.
For starters, this company faced a deluge of new and reopened claims from Hurricane Wilma, a storm that hit Florida nearly four years ago in October 2005. These claims contributed to the eventual collapse of this company because its 2005 reinsurance backup dried up, leaving this small business forced to pay these claims out of its own surplus.
In addition, this company had a large number of policies in many of the most hurricane-prone counties in South Florida. To the company’s credit, it also showed good faith through its willingness to cover Florida’s oldest homes.
What are the lessons from the two Florida home insurance companies that failed this year?
Even if your company meets the minimum capital and reinsurance requirements in the state of Florida, it can still fail for many reasons, including unexpected reopened claims from prior years and inadequate risk diversification both in Florida and in other states.
These are the things to look for when considering a new Florida home insurance company.
Most of the companies that still write new home insurance in Florida are based in the state. Look for companies that are diversifying their policy base in most of Florida’s 67 counties so that they have balanced their exposure in the southern coastal counties with policies written in the northern inland counties.
Look for companies that are growing their home insurance business in other states. Some Florida homeowners insurance companies that emerged in the mid-1990s are beginning to do this, which is an encouraging trend. Businesses that spread their risk to other parts of the country will have a better chance of surviving the next round of hurricanes.
Learn all you can about the company’s customer service and claims processing. If a company you’re considering has outsourced this work, find out what their customer service record is and how many complaints they’ve received relative to others in the industry.
Finally, find out how much surplus the company has available to pay claims and check its ratings with leading financial rating services. Many Florida home insurance companies that are awarded premium rate increases should be able to demonstrate that they can increase their surplus over time, especially if Florida continues to experience below-average hurricane activity.
You should take note of the Florida home insurance companies that were able to remain profitable in 2008 and 2009 when many other companies lost money, along with those that demonstrate the ability to use higher rates in the future to increase their surplus.
In this brave new world of fledgling Florida insurance companies, doing this research will give you the best chance of getting paid quickly and right after the next round of hurricanes in Florida.