Last month, Demotech, Inc., an Ohio-based financial appraisal firm, announced it will offload 17 private insurers operating in Florida. The move prompted a sharp response from state leaders, including counterproductive complaints to federal home mortgage agencies about Florida’s lone property insurance rating agency.
In his letter to Fannie Mae, Freddie Mac and the Federal Housing Finance Agency, Florida Chief Financial Officer Jimmy Patronis called Demotech, Inc. “a fraudulent rating agency,” playing “havoc with the financial lives of millions of Floridians.” This, from a guy who seems more interested in bashing President Biden and the IRS than finding a solution to a crisis that threatens the state’s housing market and the larger economy.
The blowout against Demotech may have bought the state time. The rating agency postponed its originally planned cuts, but complaints from the state’s CFO are no real substitute for a comprehensive policy to keep property insurance viable and affordable.
In 2019, Floridians paid $1,988, the average homeowner’s insurance premium. Today, it’s $4,231, according to an Insurance Information Institute analysis. Property and casualty companies that still offer homeowners insurance continue to face the threat of liquidation. As a result, Citizens Property Insurance Corp., the state government-backed “last resort” insurer, is quickly becoming the only viable option.
“When the market is healthy, Citizens gets smaller as private companies take advantage of good market conditions,” Michael Peltier, a Citizens spokesman, told Post reporter Hannah Morse. “When the market is in challenging times, we grow.”
As the state faces the high point of another hurricane season, the stakes couldn’t be much higher. Homeowners who rely on federally backed mortgages need highly rated insurers to meet the insurance requirements of Fannie Mae and Freddie Mac. Lower ratings typically force policyholders to pay more for new coverage, especially for homeowners whose homes are paid for through federally backed mortgages.
Understandably, Governor DeSantis called a special session of the Florida Legislature to address the crisis. The result was more money set aside for reinsurance to help struggling insurers, a move that got a boost this month when the Florida Office of Insurance Regulation announced plans to create a temporary reinsurance arrangement through Citizens Property Insurance Corp., to strengthened insurers during the current hurricane season.
The deal fills a “waiver” that allows struggling insurers to obtain reinsurance, money that would allow them to provide coverage and meet requirements for federally backed mortgages. Unfortunately, the exemptions won’t help much if Demotech is forced to make more cuts or leave Florida altogether.
Worse, the state’s efforts to address the crisis have not mollified the insurance industry, which still sees climate change and ongoing litigation as factors that make Florida a dangerous place to do business.
It’s not like the state didn’t see this coming. Large insurance firms that offer home and auto insurance policies in other states abandoned Florida years ago, leaving homeowners here with smaller firms that may be willing to take the risk but need more help getting reinsurance from the state of florida to do so. .
Whether the solution is market-driven or government-driven remains to be seen. But so far the only plan seems to be to hope we don’t get a hurricane.
If state leaders, like Patronis, are serious about dealing with property insurance, they’d better take a more proactive approach with the industry and the relevant federal agencies.
Palm Beach Post Editorial Board