Florida commission approves $1.5 million in taxpayer funds to investigate private insurance companies

TAMPA, Fla. – The latest conflict with the property insurance market in Florida comes after lawmakers approved $1.5 million in taxpayer money for the Department of Finance and the Office of Insurance Regulation to investigate other ways to finance insurance companies.

“If they’re willing to spend $1.5 million in taxpayer money to find out if there are other tax-advantaged investors, international investors who are interested in investing in Florida, that’s what they need.” all you have to do is pick up the phone and talk. to AM Best,” Managing Director of Strategy and Communications at Global Credit Rating Agency AM Best Jeff Mango said.

On September 9, the Florida Housing Finance Commission approved it request for $1.5 million from the Insurance Regulatory Trust Fundwhich DFS said will “allow those involved in the investigation to explore and explore more predictable and reliable financial or alternative solutions.”

Their concern is for homeowners who have mortgage loans that they owe if their insurance company’s money is settled on the property by Demotech.

In August, Demotech removed the ratings of two home insurance companies: Weston and United Property and Casualty Insurance (UPC). Weston then stepped into receivership and was dismissed. UPC is in trouble as it prepares to leave Florida and several other states.

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In the application for funding, DFS stated, “Demotech, Inc. has become the only financially stable organization that wants to invite start-up insurance companies and insurance companies with less than five years of operation in the state of Florida. Therefore, insurance companies they have little means of obtaining ratings from an organization other than Demotech.”
But AM Best told ABC Action News that’s not true.

“There is a misconception in the market and in the media that AM Best has left the market. We have not,” Mango explained. “We continue to count the companies below. We have 14 ratings, with Florida insurance.

Another statement in the petition about Demotech’s downgrade said, “Downgrades are a source of instability among insurance companies as businesses may be forced to offload their customers from the downgraded company.”

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We went to the Insurance Information Institute to ask them about these words.

“Is the downturn driving the industry into trouble, or is it going down because of the economic instability as it is?” investigative reporter Stassy Olmos asked.

“We recently learned that 27 Florida insurers are on Florida’s list of regulated insurance companies. That means, they have financial problems that Florida’s insurance regulators are concerned about,” Insurance Information Institute spokesman Mark Friedlander said.

“The fact that we have more companies on the watch list, in fact, than we’ve seen in the past, is a huge red flag that shows how unsustainable Florida insurers are,” he added.

Friedlander said companies with an ‘A’ from Demotech should be grateful.

“We have spoken to the management of some accounting firms and they have told us very emphatically that companies in Florida are underfunded and many will not qualify for an “A” with their company,” he said.

We asked Demotech to comment on what the government is doing.

President Joe Petrelli said in a statement that “it’s an unnecessary response to a problem that doesn’t exist. The truth is that when Hurricane Andrew devastated the country almost 30 years ago, Florida’s financial institutions chose to walk away – but Demotech stepped up.”

“Research on alternative accounting methods can be accomplished at no cost to taxpayers by looking at existing Freddie Mac and Fannie Mae vendors or service providers,” he said.

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A look at the Fannie Mae loan website shows that there are four agencies that will accept ratings from – one is AM Best. While an ‘A’ is required from Demotech, borrowers will receive a B from AM Best.

We asked AM Best why many companies would not want to be rated by their organization.

“They may not think they can get the votes they want, or they don’t want to talk to us because there is an easier way to go with other rating agencies,” said Mango.

Mango said the organization’s consistent statistics speak volumes. A company fails to vote if it has taken one or more steps to put them in place.

“We have ratings of ‘A’ and ‘A-‘ for 10 years without change, those companies have only failed 0.1% and 0.6%. And this compares very well with other financial institutions in the market,” said Mango.

We looked up Demotech standard ratings.

The three categories of ‘A’ are:

  • A” default is 2.3%
  • A’ default is 8.0%
  • Default is 9.1%

Insurers have expressed concern about Demotech’s ‘A’ rating dropping straight to cancellation or ‘NR’ – no rating, not starting to drop to two more levels at ‘M’ – moderate, or ‘S’ – severe.

Although Friedlander said Demotech has a very different approach to accounting than many of the world’s top-rated companies, he added, “Changing companies can make the situation worse in Florida because all of these insurance companies are underfunded.”

There is also concern that the government may use up to $1.5 million to find out how to test companies internally. Friedlander said this approach was unheard of.

“We have never seen any other country have an insurance policy. The honesty of your insurance company is very important, that’s why you need to review its financial situation,” he said.

When the Office of Insurance Regulation created its temporary market stabilization program for insurance companies that were brought down by Demotech, the office said it would keep the companies in compliance with federal loans. However, when we reached out to ask the service provider if this was true, we did not receive a response.

Friedlander said if such an insurance program had been approved by state providers, it would have been by now. We have tried to contact the lender before and have not received a response. Friedlander added that the internal audit agency may no longer be approved by federal lenders.

We also asked the DFS and OIR to explain the use of the funds. DFS referred us to OIR. An OIR spokesperson said in an email that the $1.5 million investigation will be “another tool in the arsenal.”

“OIR believes that the findings of this study will provide information to government leaders and help them continue to develop and implement better insurance policies in the market,” the spokesperson said.

The Insurance Information Institute emphasized that government leaders missed taxpayer money.

“All of the lawmakers who sat on this committee are guilty of making a very bad decision, in our opinion,” Friedlander said.

“It does not solve the problem. The reason we have a home insurance problem in Florida is because of the frivolous lawsuits filed against property insurers and the widespread fraud related to roof replacement. This is an ongoing problem. “It is not over, and changing the audit institutions will not solve the problem,” he said.