Florida audit agency application – “waste of taxpayers’ money”?

A joint Florida legislative committee approved a $1.5 million hearing to explore Demotech’s alternatives earlier this month.

The consultation, according to the deputy CFO Julie Jones, could see the creation of a “people management agency”, which is expected to be presented to the embassy and parliament in 2023.

The department expects “several competitive bids” during this period and expects to save at least $1.5 million, Jones told the agency.

At least four other institutions are considered to be already accredited to the GSEs. Florida insurers are not required to be A-rated. However, federal lenders Fannie Mae and Freddie Mac will not accept customers who do not have home insurance from those rated ‘A’.

Read more: Florida lawmakers are scrambling to find an alternative to Demotech

Mark Friedlander, director of the Insurance Information Institute (Triple-I), went so far as to question whether the discussion cost the government money.

“We feel the approval of the $1.5 million budget to hire a consultant was a bad decision by a bipartisan group of legislators. [measure received unanimous approval of the committee] and a misuse of taxpayers’ money,” Friedlander told Insurance Business

The congressional turn on Demotech will be the first in the US, according to Friedlander.

“We haven’t seen officials in any state publicly attack the integrity of a third-party insurance regulator before what happened in Florida in July,” the Triple-I comms boss said.

Many insurers based in Florida will not qualify for ratings from international credit rating agencies because of their current location, otherwise they will be rated “much lower” than the ‘A’ that Demotech would give, according to Friedlander, who said. this is based on the discussions Triple-I has had with the viewing agencies.

Consumers “have the right to know that their home insurance policy is financially stable and can pay claims in the event of a loss, which is why getting reliable coverage from an independent third party is so important,” Friedlander added.

“It is not appropriate for government leaders to intervene,” he said.

Triple-I and other market sources have reported that Florida’s insurance crisis has been driven by fraudulent roofing practices and litigation incentives — Florida accounts for 79% of US home insurance claims, although it accounted for only 8% of claims, according to Florida Governor’s Office data. which is often mentioned by stakeholders.

“The failure of the state legislature to address the root causes of Florida’s insurance crisis — the increasing number of coverage replacement schemes and the eviction lawsuits filed against insurers — is driving market volatility,” Friedlander said.

“We do not see that the budget passed last week will benefit insurers or policyholders.”

Speaking to Insurance Business, Demotech’s president, Joe Petrelli, noted that some of the existing companies “are here”.

“We’ve had the competition for a very long time and when we joined in 1996 we were a rookie,” Petrelli said.

“If someone wants to spend a million and a half dollars to find other competitors, then that’s their chance,” added the regulator’s boss.

Petrelli stressed that the ratings agency’s approach has remained “unchanged”, with its chief rating officer and ratings manager having been in place since 1996 and 2005 respectively.

“We’ve been consistent, and we’ve had the same people be consistent for 26 years,” Petrelli said.

“I don’t understand the other side of the equation anymore.”

“Sometimes I strike and sometimes I split and sometimes I have the ball, but I swear I always do the same thing,” Petrelli said, using a bowling analogy. “I don’t blame him for scoring goals, I blame myself.

“Criticizing the goalkeeper, I think that’s part of what happens in any governing body – but I don’t think the goalkeeper and the market situation are the same thing.”

Demotech is in the process of preparing a preliminary report, Petrelli said, that he hopes will also show why Florida represents so many homeowner lawsuits.

“We will share this publicly,” Petrelli promised.

Regarding the next steps, Petrelli said: “We look forward to spending another 26 years serving Floridians and the insurance industry in Florida.

“There’s a lot more we can do as goalkeepers, but we’ll keep on keeping goals.”

Demotech’s July warning that more than 17 businesses could lose or lower their rates appeared to cause panic among FLOIR and others, prompting responses from Insurance Commissioner David Altmaier and Florida CFO Jimmy Patronis.

“OIR is being forced to take unprecedented action to protect the Floridians we serve, especially two months into hurricane season,” Altmaier wrote to Demotech in July.

“This is an example of the unconscionable, independent power of the polling agency and it’s trying to expose Floridians and policymakers to trying to block public policy based on their own views.”

The regulator was also criticized for using “speculation” as part of its policy in a Patronis letter that month to the GSEs.

Kyle Ulrich, CEO of the Florida Association of Insurance Agents, called Demotech “monopolistic” and accused the association’s president of being “successful” in a July blog post.

In response to the decline in fear, FLOIR wanted to establish what is called “temporary reinsurance”, which is expected to be managed by the last insurer Citizens, which is now the largest insurer in the state.

An automatic download failed. As of Sept. 9, after the committee approved the negotiated settlement, only one company was downgraded and two lost, according to a briefing paper prepared for parliament.

Among those injured was United Property & Casualty Insurance, which reportedly has 185,000 policyholders in Florida. UPC said it would look into systematic evictions, even though Triple-I’s review indicated that the insurer could “risk” failing.

Read more: UPC lays off workers, insures “on the brink” of failure – Triple-I

Read more: Federal mortgage brokers were “surprised” by Florida’s reinsurance plan – Triple-I

Demotech, based in Ohio, first established a presence in the Floridian market in 1996, after Hurricane Andrew of 1992, amid several failed pickups and deliveries.

The market is also struggling financially, although it hasn’t experienced a hurricane since 2018’s Hurricane Michael.

Read more: Florida and Louisiana in trouble – a story of two states

At the time of writing, five Floridian insurers have failed, and warnings have come — not from Demotech — that more could follow.

“ALIRT anticipates market effects and potential failures in the Florida market given the financial history of several small Florida insurance companies,” was the message ALIRT shared with Insurance Business in July.

“In fact, our April update on the Florida homeowner’s market found that nearly 70% of these Florida volunteer insurance policies.[s] had ALIRT Scores that fell into the ‘red zone’ indicating areas requiring improvement.

S&P data, provided by Citizens, showed that of the top 10 homeowner insurers in Florida, only two posted a profit in 2021, with none in 2019 or 2020.

Source: Citizens and S&P

When asked by the Insurance Agency on the Demotech issue, FLOIR pointed to previous Bills that passed through the legislature, dealing with areas such as the distribution of profits (AOBs) and transparency.

“Florida has enacted historic and unprecedented reforms to promote market stability, but the impact of these reforms will take time,” said a FLOIR spokesperson.

“OIR is committed to working with Governor DeSantis, the Florida Cabinet and the Florida Legislature to promote a stable and competitive insurance market for consumers.”