Florida takes ‘unprecedented’ step to stabilize home insurance industry – InsuranceNewsNet

Florida insurance regulators are taking an “unprecedented” and “extraordinary” step to try to prevent tens of thousands of homeowners from being forced to seek new property insurance coverage if ratings agency Demotech follows through on plans to downgrade many Florida carriers.

Florida Office of Insurance Regulation announced a plan on Wednesday to provide downgraded companies with reinsurance coverage through state government Property insurance of citizens.

The dramatic decision to take on financial responsibility for a host of struggling insurers underlines the dire circumstances Florida stands as much of its owner’s insurance market teeters on the brink of collapse.

Downgrading so many companies could wreak havoc on the state, causing major problems for homeowners and the real estate industry.

Mortgage giants Fannie Mae and Freddie Mac require borrowers to have a home insurance policy from a highly rated company. of Florida the home insurance market is dominated by smaller companies that only receive ratings from Demotech, giving the company significant influence in the industry.

Florida Insurance Commissioner David Altmeier wrote a letter to Demotech last week expressing concern that the company was ready to downgrade to “approximately 17” Florida insurers.

Downgrading the companies could cause mortgage lenders not to accept those policies and force homeowners to get coverage elsewhere, a difficult proposition in a state where insurers are dropping policies and dramatically raising rates for policyholders.

“OIR’s highest priority is to ensure that consumers have access to insurance, especially during hurricane season; and due to the uncertainty with the status of Demotech’s ratings, we have been forced to take extraordinary steps to protect millions of consumers,” Altmeier said Wednesday in announcing the reinsurance plan.

An OIR press release said providing reinsurance to downgraded companies would make their policies acceptable to Fannie Mae and Freddie Mac.

Fannie Mae and Freddie Mac each offers an exemption from the financial rating requirements for an insurer that is covered by a reinsurer that assumes, by endorsement, 100 percent of the insurer’s liability for any covered loss due but unpaid by the insurer due to insolvency,” the release states.

manager Ron DeSantis said Wednesday that it makes sense to use Citizens as a financial backstop for insurers because if the companies are downgraded, many of their policies will eventually go to Citizens, the state’s insurer of last resort.

“If the companies get downgraded and have to drop their policies, they’re going to go to the citizens anyway, so the exposure to the citizens is more of underwriting the policies than acting as a reinsurer of last resort,” DeSantis said on press conference time in Tampa.

Reinsurance is insurance for insurance companies. By providing such coverage, citizens will be obligated to pay claims if downgraded insurers are unable to meet their financial obligations. Rising reinsurance costs have contributed to the problems of the home insurance industry in the Floridawhich is highly dependent on such coverage.

Additional reinsurance coverage is in addition to a 2 billion dollars bailout fund approved by state lawmakers during a special session earlier this year. This fund provides free reinsurance Florida insurers. It was part of a package of reforms designed to stabilize the insurance industry.

Demotech had planned to release its ratings revisions on Tuesday, but said in a statement provided to USA TODAY Network – Florida that the ratings take longer to update.

“As the current regulatory climate has become hostile and negative, and we have made and will make significant efforts to create responses to third-party letters, we will take additional time to review the information and address the issues affecting companies operating in Florida“, the message says.

Follow the Herald-Tribune’s political editor Zach Anderson on Twitter at @zacjanderson. He can be reached at [email protected]

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