Last month, Demotech, Inc., an Ohio-based financial ratings firm, announced it would downgrade 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 sole 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 credit rating agency” playing “wrecking havoc on the financial lives of millions of Floridians.” This from a man who seems more interested in taking on President Biden and the IRS than finding a solution to a crisis that threatens the state’s housing market and the larger economy.
The rant against Demotech may have bought the state time. The rating agency delayed originally planned downgrades, but the government’s CFO’s whining is no real substitute for a comprehensive policy to keep property insurance viable and affordable.
In 2019, Florida residents paid $1,988, the average homeowner’s insurance premium. Today, that’s $4,231, according to an analysis by the Insurance Information Institute. Property and casualty companies that still offer homeowners insurance continue to face the threat of liquidation. As a result, Citizens Property Insurance Corp., the government-backed insurer of “last resort,” quickly became the only viable option.
“When the market is healthy, Citizens gets smaller as private companies take advantage of good market conditions,” Citizens spokesman Michael Peltier told Post reporter Hannah Morse. “When the market is in tough times, we grow.”
As the state faces the peak of another hurricane season, the stakes couldn’t get much higher. Homeowners relying on federally-backed mortgages need highly rated insurers to meet Fannie Mae and Freddie Mac insurance requirements. Lower ratings typically force policyholders to pay more for new coverage, especially for homeowners whose homes are paid off with federally backed mortgages.
Of course, Governor DeSantis called a special session of the Florida Legislature to deal with the crisis. The result was more money set aside for reinsurance to help struggling insurers, a move that was reinforced this month when the Florida Office of Insurance Regulation announced plans to create a temporary reinsurance arrangement through Citizens Property Insurance Corp. to bolstered insurers during the current storm season.
The agreement meets an “exemption” 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 downgrades or leave Florida altogether.
Worse, the state’s efforts to address the crisis have not mollified the insurance industry, which still views climate change and ongoing litigation as factors that make Florida a risky place to do business.
It’s not like the state didn’t anticipate this. Big insurance companies that offer bundled home and auto insurance policies in other states abandoned Florida years ago, leaving homeowners here with smaller firms that may be willing to take on the risk but need more help getting of reinsurance from the state of Florida to do so .
Whether the solution is market driven or government driven remains to be seen. But for now the only plan seems to be to hope we don’t get a hurricane.
If state leaders like Patronis are serious about property insurance, they’d better take a more proactive approach with the industry and relevant federal agencies.
The Palm Beach Post Editorial Board