Although there were no hurricanes in Florida in 2009, there was a lot of news from Florida home insurance companies.
First of all, nearly 50% of all active home insurers in Florida lost money in 2008—a year when no major storms hit. Several companies continued to experience losses in 2009. Among the reasons for these losses are lower revenue due to insufficient Florida home insurance rates as well as higher expenses.
With the development of 2009, two Florida home insurance companies failed and were placed in receivership by the state after their cash reserves fell below required minimum levels.
Home insurance companies that fail during non-hurricane years should send fear and panic across the state. why? Because if these companies can’t make money in non-hurricane years, the odds will increase exponentially that you won’t be able to raise enough cash to pay your claim after a major Florida hurricane.
A closer examination of the company that failed in the spring of 2009 reveals disturbing trends that may affect other Florida home insurance companies in the future.
For starters, this company faced an onslaught 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 due to the exhaustion of its reinsurance reserve since 2005, leaving these The small company is in trouble to pay these claims out of its own surplus.
In addition, this company had a large number of policies in many of the southern counties of Florida, the most hurricane-prone in the state. To the company’s credit, it has also shown goodwill by being willing to cover older homes in Florida.
What are the lessons from the failure of the two Florida home insurance companies this year?
Even if your company meets the minimum capital and reinsurance requirements in Florida, it can still fail for many reasons including unexpectedly reopened claims from previous years and insufficient risk diversity across Florida and in other states.
Here are the things you should look for when considering setting up a new home insurance company in Florida.
The majority of companies still writing new home insurance in Florida are located in the state. Look for companies that diversify their policy base across most of Florida’s 67 counties, balancing their exposure in the southern coastal counties with the policies written in the northern interior counties.
Look for companies that are growing their home insurance business into other states. Some of the Florida home insurance companies that sprang up in the mid-1990s began to do so, which is an encouraging trend. Companies that spread their risk to other parts of the country will improve the odds of surviving the next round of hurricanes.
Find out as much information as possible about the company’s customer service and claims handling. If the company you’re considering has outsourced this work, learn about their customer service history and the number of complaints they’ve received compared to others in the industry.
Finally, find out how much surplus the company has available to pay claims and check its ratings with major financial rating services. Many Florida home insurance companies that are granted premium increases should be able to show that they can increase their excess over time—particularly if Florida continues to have below-average hurricane activity.
You should consider Florida home insurers that managed to keep their profits in 2008 and 2009 when many others lost money – along with those that show the ability to use higher rates in the future to increase their surplus.
In this brave new world of newly emerging insurance companies in Florida, doing this research will give you the best chance of paying quickly and fairly after the next round of Florida hurricanes.