The following are just some of the things that need clarified for FL residents with regard to the constant misinformation and misunderstandings of the property markets in this state. This is primarily written in response to an article published in the news-press at this link....
Blogs should be short so I am going to try my best. Brevity will leave out many details. If you wish more details, respond to this and I will be glad to elaborate.
Allstate, has changed the name of their FL insurance company to Castle Key to totally divorce the FL property insurance business from the parent company. With that done, their financial stability rating by A.M. Best is terrible. State Farm is in the process of canceling 125,000 policies as part of a deal made with the state. Another part of that agreement was to let them refuse to honor any policy discounts being applied to policies they are willing to keep. This will represent about a 47% increase in rates on policies they want to keep.
No “household name” property insurer is coming to this state to begin insuring property any time soon. There are basically 3 types of state insurance regulation concerning rates and rate filings used by insurers. They are referred to in the following manner:
1) Use and file: This means use whatever you want to use – it’s your money and your certificate of authority at risk – and provide the state evidence of what you are using within 6 months of the time you begin using a specific set of rates and rules.
2) File and use: This means the same as number 1 above except the state wants a copy on file the day you begin using a set of rates and rules.
3) Prior approval: This means you can’t use anything that does not have an agreed upon approval “stamp” by the state prior to the day you begin using it.
FL is applicable to #3 above, the worst kind of regulatory hassle. With people like Charley Crist using the insurance industry as a political football for their own gain, FL is a worst case example of why brand name insurers won’t insure property in FL. They won’t tolerate it. They don’t have to and they don’t need to.
There are three basic reasons.
1) They are actually penalized by their reinsurers (or surcharged) on their entire national book of business if they insure property in FL. and;
2) They do not have any interest in the negative publicity and the incredible expense of trying to get the FL O.I.R. to approve a rate plan. Since about 2,000, the state has been determining rates with political freezes, etc. These companies won’t play that game. The state isn’t going to set their rates for them. It’s their money and if they don’t feel a fair rate of return potential it won’t be a risk.
3) The catastrophic risk potential is real.
The state run company of last resort, Citizen’s, is a complete disaster. They are broke now. And that is without a storm of any kind! They have become the largest property insurer in FL and are growing by 26,000 policies per month (1st 6 mos. 2010)! They are the worst of the worst (see my prior blogs for more explanation on Citizen’s). They currently hold $2T in liability w/ total reinsurance and cash of @ $20B. Bonds would be sold to pay claims. Oh yes, every person with an insurance policy in FL (irregardless of the insurance company) would pay a huge assessment attached to their policy to support this mess. This assessment could be between $500 - $700 / yr.! Do not mistake “state backed” with comfort of a claim being paid.
In other states, I have personally seen companies rated A+ by A.M. Best the days the authorities came in took over the company. I have been involved with companies rating. I can assure you this is a bogus and politically motivated process with very little “real” credibility.
Reinsurance is the absolute critical mass to the financial stability of an insurer. Cash pales in comparison. No insurer in FL retains over 10% of the actual risk. Hence, reinsurance is the real issue irregardless of company name, age, etc.
FL based companies are the only option in most cases (with reasoning detailed above). Unless and until this state ceases using insurance for political gain, it won’t change.
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