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 insurance companies in Florida lost money in 2008 – the year that no major storms hit. Many companies continued to experience losses in 2009. Among the reasons for these losses were lower revenues due to inadequate home insurance rates in Florida along with higher expenses.
As 2009 developed, two Florida home insurance companies failed and were placed into 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 years without hurricanes, the odds are greatly increased that you won’t be able to raise enough cash to pay your claim after the big Florida hurricane.
A closer examination of the company that failed in the spring of 2009 reveals troubling 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 of 2005. These claims contributed to this company’s eventual downfall because its backup reinsurance since 2005 was depleted, leaving this small company on the hook for paying those claims out of its own oversupply.
In addition, this company had a large number of policies in several southern counties of Florida, the most hurricane-prone in the state. To the company’s credit, it has also shown good faith by being willing to cover older homes in Florida.
What are the lessons learned from the failure of two home insurance companies in Florida this year?
Even if your company meets Florida’s minimum capital and reinsurance requirements, it can still fail for many reasons including unexpectedly reopened claims from previous years and insufficient risk diversification across Florida and in other states.
Here are the things you should look for when considering starting 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 exposure in southern coastal counties with written policies in northern inland counties.
Look for companies that are growing their home insurance business to other states. Some of the home insurance companies in Florida that appeared in the mid-1990’s have started doing this and it’s an encouraging trend. Businesses that spread their risks to other parts of the country will improve their odds of surviving the next round of hurricanes.
Learn as much as possible about the company’s customer service and claims handling. If the company you are considering has outsourced this work, learn about their customer service history and the number of complaints they have 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 major financial rating services. Many Florida home insurance companies that are awarded premium rate increases should be able to show that they can grow their surplus over time — especially if Florida continues to experience below-average hurricane activity.
You have to take into account the Florida home insurers that were able to maintain their earnings 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 getting paid quickly and fairly after the next round of Florida hurricanes.
