Even though there were no Florida hurricanes in 2009, there was plenty of news from Florida home insurance companies.
To begin with, nearly 50% of all active Florida home insurance companies lost money in 2008 – a year in which no major storms hit. Many companies continued to experience losses into 2009. Among the reasons for these losses include lower revenue due to inadequate Florida home insurance rates along with rising expenses.
As 2009 unfolded, two Florida home insurance companies failed and were placed in receivership by the state after their cash reserves fell below the required minimum levels.
Homeowners insurance companies failing 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 odds increase dramatically that they will not be able to build up enough cash to pay your claim after a major Florida hurricane.
A closer inspection of the company that failed in the spring of 2009 reveals disturbing trends that could affect other Florida home insurance companies in the future.
For starters this company faced an onslaught of both new and reopened claims from Hurricane Wilma – a storm that struck Florida nearly four years ago in October of 2005. These claims contributed to the ultimate collapse of this company because its backup reinsurance from 2005 was exhausted, leaving this small company on the hook to pay these claims from its own surplus.
In addition, this company had a large number of policies in many of Florida's southern, most hurricane prone counties in the state. To the company credit, it also showed good faith through its willingness to cover older Florida homes.
What are the lessons from 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 can still fail for many reasons including unexpected reopened claims from prior years and inadequate risk diversification across both Florida and into other states.
Here are the things you should look for when considering a new Florida home insurance company.
The majority of the companies still writing new home insurance in Florida are based in the state. Look for companies that are diversifying their policy base across most of the 67 counties in Florida so that they have balanced their exposure in the southern coastal counties with policies written in the northern interior counties.
Look for companies that are growing their home insurance business into other states. Some Florida home insurance companies that came into existence in the mid 1990's are beginning to do this which is an encouraging trend. Companies that distribute their risk into other parts of the country will have improved odds of surviving the next round of hurricanes.
Learn as much as you can about the company customer service and claims processing. If a company you are considering has outsourced this work find out what their customer service history is and how many complaints they have received relative to others in the industry.
Finally, find out how much surplus the company has available to pay claims and check on their ratings with the major financial rating services. Many Florida home insurance companies being granted premium rate increases should be able to show that they can grow their surplus over time – particularly if Florida continues to have below average hurricane activity.
You should take note of those Florida home insurance companies that were able to stay profitable in 2008 and 2009 when many other companies lost money – together with those that demonstrate the ability to use higher rates going forward to increase their surplus.
In this brave new world of newly formed start-up Florida insurance companies, doing this research will give you the best chance of being paid quickly and fairly after the next round of Florida hurricanes.