Florida’s Joint Legislative and Budget Committee approved a $1.5 million deal earlier this month to explore alternatives to Demotech.
Deputy CFO Julie Jones said the talks could create a “public rating agency” whose findings are expected to be submitted to the Chief Executive’s Office and Congress in 2023.
The department expects “several competitive bids” during the process and hopes to keep costs under $1.5 million, Jones told the commission.
It is understood that at least four other rating agencies have already been accepted into the GSE. Florida insurers do not have to be A rated. However, federal mortgage his providers Fannie Mae and Freddie Mac will not accept customers who do not have home insurance from providers rated ‘A’.
read more: Florida lawmakers race to find demotech alternatives
Mark Friedlander, Communications Director of the Insurance Information Institute (Triple-I), even questioned whether the consultation constitutes a waste of public funds.
“We feel the approval of the $1.5 million budget to hire consultants was an inappropriate decision by a bipartisan group of lawmakers. [measure received unanimous approval of the committee] And misuse of taxpayer money,” Friedlander told Insurance Business.
According to Friedlander, Congress has introduced Demotech for the first time in the nation.
“Before the July incident in Florida, we had never seen an official in any state openly attack the integrity of a third-party insurance rating agency,” Triple-I reported. Boss said.
Most Florida home insurance companies are ineligible for financial ratings from global rating agencies because of their current capital positions, Friedlander said. This claim is based on conversations Triple-I had with rating agencies.
Consumers “have a right to know that their home insurance company is financially stable and able to pay their claims when they suffer a loss. That’s why they get a credible rating from an independent third party.” is very important,” Friedlander added.
“It is not appropriate for national leaders to interfere in this process,” he said.
Triple-I and other market sources argue that Florida’s insurance problems are driven by fraudulent roof repair schemes and incentives for claim litigation. Florida accounts for 79% of home insurance claims filed across the United States, despite accounting for only 8% of claims. to Florida Governor’s Office data frequently cited by stakeholders.
“The legislature’s failure to effectively address the root causes of Florida’s insurance crisis — a rampant roof replacement claim scheme and runaway lawsuits against insurers — has further destabilized the market.” Friedlander commented.
“I doubt that the budgetary measures taken last week will benefit insurers and policyholders.”
Demotech president Joe Petrelli told Insurance Business exclusively that another rating agency already “is in existence today.”
“We’ve been competing for a very long time already. We were actually rookies when we joined in 1996,” said Petrelli.
“If someone wants to spend up to $1.5 million to find additional competitors, that is certainly their prerogative,” the rating agency boss added.
Petrelli claims the agency’s strategy has been “consistent”, with chief rating officers and rating managers having been on board since at least 1996 and 2005, respectively.
“We’ve been completely consistent. It’s been the same people who have been consistent for 26 years,” says Petrelli.
“I’m at a loss to understand the other side of the equation here.”
“Sometimes I strike, sometimes I split, sometimes I play gutterball, and I can assure you I did the same thing every time,” Petrelli said, using a bowling analogy. “I don’t blame the scorekeeper when it happens, I blame myself.
“I think blaming scorekeepers is part of what happens to all rating agencies, but I don’t think the situation with scorekeepers and the market is the same.”
Demotech is drafting a preliminary report, Petrelli said, which he believes will provide more reasons why Florida represents many of the homeowner lawsuits.
“We will share it publicly,” Petrelli promised.
Regarding next steps, Petrelli said:
“I am limited in what I can do as a scorekeeper, but I will continue to keep the score.”
Demotech’s July warning that more than 17 businesses could be lost or have their ratings downgraded appears to have sparked fear among FLOIR and others, with insurance commissioner David Altmaier and Florida caused a reaction from Jimmy Patronis, CFO of
“The OIR has been compelled to take the extraordinary step of scrutinizing these unprecedented actions to protect the Floridians we serve, especially two months into the hurricane season.” Altmaier wrote to Demotech in July.
“This is an example of the inconsistent and monopoly power of select rating agencies to wield coercive influence over Floridians and policy makers to impede public policy according to their own views. I am.”
The rating agency was also accused of using “speculation” as part of the process in a letter Patronis wrote to the GSE that same month.
Kyle Ulrich, CEO of the Florida Association of Insurance Agents, called Demotech “proprietary” in a July blog and accused the organization’s president of “grandstanding.”
In response to the feared downgrade, FLOIR sought to establish what it called a “temporary reinsurance” plan. This will be done through the insurer of Last Resort Citizens, which is currently the largest property and casualty insurer in the state.
The pre-warned surge in downgrades did not materialize. As of Sept. 9, when the commission approved the consultation budget, he had only one company downgraded and two had lost their ratings, according to a briefing document prepared for Congress.
But among the victims was United Property & Casualty Insurance, which has an estimated 185,000 home insurance policyholders in Florida. The UPC said it looked like an orderly run-off, but the Triple-I analysis suggested that insurers may be “on the brink” of bankruptcy.
read more: UPC Lays Off Employees, Insurers Near Bankruptcy – Triple-I
read more: Federal Mortgage Providers ‘Surprised’ by Florida Reinsurance Plans – Triple-I
Ohio-based Demotech gained a foothold in the Floridian market in 1996 in the aftermath of Hurricane Andrew in 1992.
The market is struggling financially again, even though it hasn’t felt a major storm hit since Hurricane Michael in 2018.
read more: Crisis in Florida and Louisiana – A Tale of Two States
As of this writing, five property and casualty insurers in Florida have filed for bankruptcy, and there are warnings that more could follow, not just Demotech.
In a message shared by ALIRT with Insurance Business in July, ALIRT said, “Given the current financial situation of these smaller insurers within Florida, ALIRT has decided to withdraw further from the Florida market. We are anticipating a potential bankruptcy.”
“In fact, according to the April update on the Florida homeowner market, almost 70% of these dedicated Florida insurers[s] Indicates that the ALIRT score is in the “red zone” and potential corrective action is required. ”
According to S&P data provided by Citizens, only two of Florida’s top 10 domestic homeowners insurers reported net underwriting gains in 2021, with no gains in 2019 or 2020. None of the companies did.
Source: Citizens and S&P
When approached by Insurance Business on the Demotech issue, FLOIR pointed to previous legislation passed by Congress, addressing areas such as Allocation of Benefits (AOB) and Claims Transparency.
“Florida enacted historic and unprecedented reforms designed to promote market stability, but the impact of these reforms will take time,” a FLOIR spokesperson said. I’m here.
“OIR is committed to working with Governor DeSantis, the Florida Cabinet, and the Florida Legislature to promote a stable and competitive insurance market for consumers.”