While there were no hurricanes in Florida in 2009, there was plenty of news from Florida home insurance companies.
For starters, nearly 50% of all active home insurance companies in Florida lost money in 2008 – a year when no major storms hit. Many companies continued to incur losses in 2009. Among the reasons for these losses include lower revenues due to inadequate home insurance rates in Florida, along with rising costs.
During 2009, two Florida home insurance companies went bankrupt and went into state receivership after their cash reserves fell below the required minimum level.
Homeowners insurance companies that go out of business 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 chances of them not being able to build up enough money to pay your claim after a major Florida hurricane increase dramatically.
A closer inspection of the company that went bankrupt in the spring of 2009 reveals troubling trends that could affect other home insurance companies in Florida in the future.
For starters, this company faced an onslaught of both new and reopened claims from Hurricane Wilma — a storm that hit Florida nearly four years ago in October 2005. leaving this small company on the hook to pay these claims out of its own surplus.
In addition, this company had a large number of policies in many of Florida’s most hurricane-prone counties in the state. To credit to the company it also showed good faith in its willingness to cover older homes in Florida.
What are the lessons of 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 could still fail for many reasons, including unexpected reopened claims from prior years and insufficient diversification of risk in both Florida and to other states.
Here are the things to look for when considering a new home insurance company in Florida.
The majority of companies that continue to provide new home insurance in Florida are based in the state. Look for companies that are diversifying their policy base across most of Florida’s 67 counties so they’ve balanced their exposure in the southern coastal counties with policies written in the northern inland counties.
Look for companies expanding their home insurance business to other states. Some Florida home insurance companies that emerged in the mid-1990s are starting to do this, which is an encouraging trend. Companies that spread their risk across other parts of the country are more likely to survive the next hurricanes.
Learn as much as you can about the company’s customer service and claims processing. If a company you’re considering has outsourced this work, find out their customer service history and how many 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 their ratings with major financial rating services. Many Florida home insurance companies that get premium increases should be able to demonstrate that they can grow their surplus over time — especially if Florida continues to have subpar hurricane activity.
You should take note of those Florida home insurance companies that were able to continue to be profitable in 2008 and 2009 when many other companies lost money – along with those that demonstrate their ability to use higher rates in the future to increase their surplus.
In this brave new world of newly established startup insurance companies in Florida, this research gives you the best chance of getting paid quickly and fairly after the next round of Florida hurricanes.