It’s the middle of August, in the middle of hurricane season and Florida’s insurance market is in trouble.
If you feel like you’ve heard it before, you have. For years, actually. But in the last few years, things have taken a turn for the worse.
Lawmakers know this. The Florida Legislature held a special session on the state’s insurance crisis a few months ago. Gov. Ron DeSantis signed the proposed measures into law to slow down the growing market.
And yet, premiums are rising, as insurance companies go out of business. The latest is Coral Gables-based Weston Property & Casualty, with 22,000 policies, about 9,400 in South Florida. It is the fifth company this year to go to Florida. The record was eight in one year, and this happened after Hurricane Andrew, which hit in 1992.
Now we learn that the state’s insurance market has been working for many years in a way that leaves it difficult: Florida relies on one company, Ohio-based Demotech Inc., to certify the majority of insurers in Florida. The risk that comes with this became apparent a few weeks ago when the company sent a notice saying that it could downsize about a dozen companies – which would cause a housing crisis at a difficult time for homeowners (hurricane season) and politicians (election season). ).
The federal government was quick to respond. Fortunately for homeowners, it has come up with a temporary solution that can solve many problems in this, very difficult time.
But then, determined to shake confidence in the market, the government again attacked Demotech publicly. Florida Chief Financial Officer Jimmy Patronis called it a “fraudulent organization” — though no one seems to dispute the idea of Florida insurers going bankrupt. Demotech president Joe Petrelli applauded, saying the level of rancor was “unprecedented”.
Florida Insurance Commissioner David Altmaier also took notice, calling the state’s reliance on Demotech “monopolistic”.
Tossing and turning, it’s doing nothing to fix Florida’s troubled and failing insurance market. During the special session, lawmakers took steps to reduce the number of fraudulent roofing claims, a worsening issue that many attribute to rising insurance costs.
And taking action can help – but it’s not much comfort to homeowners who were counting on Weston’s insurance company during the storm and now have to find a new carrier in a few weeks.
It is up to the Legislature, the governor and the state insurance office to deal with the big problem of how to reduce costs and cover – whether it is Demotech or not – not for one year or one special period, but for a long time. This special session was the starting point, but somehow, the day of full reckoning will not come in Florida. We simply unify the insurance market and hand it over to other policymakers.
Consumers, meanwhile, have insurance premiums that are increasing at twice the national rate, rising in DeSantis’ time from an average cost of $1,988 in 2019 to $4,231 this year.
In the real story of Demotech, Florida is in a bind. The company is the only one that wants to give ratings to small insurers, rating the insurance they need to cover mortgages and mortgages backed by the government, especially Fannie Mae and Freddie Mac. If Demotech had downgraded many insurance companies, as it had previously suggested, the downgraded companies would no longer be able to repay their federally-backed loans, sending many customers out of the market during the hurricane.
Banks can “force” homeowners into new insurance – whatever the bank can find – policies that will inevitably cost more and pay less. And many homeowners may be covered by Citizens Property Insurance, the “ultimate insurance” that was created by the state in 2002 to cover homes that private insurance cannot. Citizens already have more than one million plans.
So coming up with a long-term solution to allow insurers to continue to use government agencies to support them makes sense. It does not mean, of course, to come up with the big question of how to keep the Florida market strong or to make insurance cheap. And another – if needed – Band-Aid.
Here’s our bold prediction: Florida’s fight against Demotech will last for a while, ending as lawmakers push the insurance until it passes the election safely. And Florida homeowners will still pay the cost.
But here’s our question: At what point is a problem no longer a problem – and a legitimate way of doing business?
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This article was originally published August 17, 2022 1:35 PM.