Monday, July 16, 2018
Business

Another costly homeowners insurance mistake for Florida

A moment of silence, please. Another property insurance company in Florida has gone belly-up.

You need not weep or offer feigned condolences, but you may want to pay attention. Because, one way or another, this will likely have an impact on your wallet.

You see the company in question, Sunshine State Insurance, has left about $36 million in unpaid claims and refunds in its wake, according to a story in Sarasota's Herald-Tribune .

That means the state will have to dip into its insurance reserves, and it probably means your insurance bill will eventually be dinged with new assessments to cover that loss.

Sound bad?

It gets much, much worse.

This is no anomaly. No freakish confluence of unforeseen events. This actually happens quite frequently in Florida, and it is costing residents a ton of money.

Sunshine State was one of those smaller companies the state once recommended as an alternative for customers with Citizens policies.

If you're counting, this makes at least seven of those so-called Citizens takeout companies that are no longer in business. If you want to be picky and count the companies that merged before biting the dust, the number of failures is up to nine.

A Tampa Bay Times report last year indicated previous bankruptcies had cost the state about $400 million. So now you can add $36 million more to the mix.

And, yes, it still gets worse.

You could make a pretty strong argument that many of these losses could have been avoided if your leaders in Tallahassee weren't so A) reckless in shedding Citizens policies and B) lax in monitoring these pop-up companies.

Shifting policies away from Citizens and into the hands of unproven private insurers did not solve long-term liabilities and actually created short-term losses. And that doesn't even take into account the incentive money the state offered private insurers.

Or, to put it another way, those private insurers went out of business during a time when the state was handing them money, steering customers their way and when there were zero hurricanes in Florida.

"There is no reason a company with sufficient capital should have failed in the last eight years," said Gavin Magor, a senior analyst at Weiss Ratings, a Florida-based watchdog organization. "We haven't had any hurricanes, and all of these companies are gone. Failed. This doesn't cost the state money; it costs residents money."

And, yes, it gets even worse.

When you think of bankruptcy, you picture a company losing money. That's not necessarily the case when it comes to property insurers. Many of these companies went under because they did not have enough reserves to pay claims.

And why didn't they have enough reserves?

Because they were shifting money to management firms — which are often subsidiaries of their own company — which made huge profits.

Look at it this way:

Citizens is the most financially stable insurer in the state. Is that because government bureaucrats are so much smarter and more efficient than private insurers?

Um, no.

It's because Citizens is using premiums to build its reserves while the private companies are lining their pockets with your money and then bailing before the next hurricane hits.

Meanwhile, politicians continue to insist that Citizens needs to downsize. Philosophically, that's not a bad plan.

The problem is the state's insurance regulators are not doing a very good job of making sure these takeout companies are operating responsibly.

If they're dropping like flies in storm-free years, can you imagine the havoc we will see when a hurricane finally finds us again?

Yet the state continues to aggressively push Citizens customers toward companies that have enough money to donate to political campaigns but not enough to pay claims.

Takeout letters use strong-arm tactics with ominous warnings about Citizens hitting customers with high assessment fees in the case of emergencies.

"It's basically coercion," Magor said. "That's how it appears to the average consumer. You're being mugged with those letters."

There are 119 property insurers in the state today. Of those, Weiss Ratings has deemed 20 as "weak" or "very weak." That would mean about 17 percent of the private insurers in Florida appear to be in danger of folding.

The highest-rated insurer in the state?

Citizens, by far.

None of that sounds very comforting.

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