Recently there has been an uproar from Florida homeowners who are concerned about offers to take their Florida homeowners insurance out of Citzens Insurance, by no-name thinly capitalized, unstable, untested Florida Home Insurance Companies.
The St. Petersburg Times has run several stories on this - the most recent one on November 7, 2008 by Ivan Penn entitled "Consumers cry foul over Citizens' shift to low rated firms".
The concerns being highlighted in the article include among other things:
An assertion that the take out letters look like junk mail - not an offer to move to Florida homeowners policy out of Citizens Insurance to a private Florida homeowners insurance company.To time confusing process that must be followed if you don't want your Florida homeowners insurance policy to be taken out of Citizens Insurance.The poor financial ratings that some of these take out companies have received from some of the organizations that rate Florida home insurance companies.By far, most of the uproar seems to be the concern that these take out Florida home insurance companies are not financially stable.
If there is one message any Florida homeowners insurance consumer should take from this article is that you have to do your research on any Florida homeowners insurance company you are considering.
Before any consumer complains about the financial stability of to Florida take out company, it would be very wise to get the truth about Citizens Insurance. With almost $500 billion in claims and approximately $15 billion in cash on hand to pay claims (much of it borrowed) Citizens Insurance Florida is not the poster child for financial stability. Not to mention that if it has to tap the bond market to borrow additional funds, the sub prime financial meltdown has created a situation where Citizens Insurance might not be able to borrow enough to pay all of its hurricane claims after a major storm. And reach to point where reinsurance losses when you have to kick in, guess where that money is going to come from? The Florida Hurricane Catastrophe Fund - another State of Florida run entity also short on cash and heavily dependent on a shaky bond market to raise additional cash.
Now that we've cleared the air on Citizens Insurance, let's talk about the Citizen Take Out Companies that are offering to take the Florida homeowners insurance policies out of Citizens Insurance. According to the website, the Citizens 14 take out insurance companies mentioned in the St. Petersburg Times are:
American Keystone Insurance Company
American Integrity Insurance Company
Argus Fire & Casualty Insurance Company
Avatar Property & Casualty Insurance Company
Edison Insurance Company
Florida Peninsula Insurance Company
Homeowners Choice Insurance Company
Homewise Preferred Insurance Company
Landmark One Insurance Company
Magnolia Insurance Company
Northern Capital Insurance Company
Southern Oak Insurance Company
Sunshine State Insurance Company
United Property & Casualty Insurance Company
First let's talk about the what to take out Florida home insurance company is and why taking Florida home insurance policies out of Citizens Insurance is supposed to accomplish:
It moves homeowners insurance risk away from Citizens Insurance and puts it on private Florida home insurance companies. The hope is that these policyholders end up with solvent Florida home insurance companies that will do a good job much smaller policyholder servicing base than Citizens Insurance.By moving the risk to the private sector, the goal is to avoid a situation where Citizens Insurance gets buried by claims that it can't pay and you have to impose special assessments accross many different types of Florida insurance policies.Take out companies get an instant base of Florida home insurance policyholders - without the usual marketing costs. This helps new Florida homeowners insurance companies build up their cash reserves.Some of the downside of Florida take out home insurance companies include:
Sometimes the new start-up companies can't build up their cash reserves and go belly up after a major event like a Florida hurricane.Florida take out insurance companies might have inexperienced staff and you end up being part of their claims handling training - right after a major hurricane.Some of these new Florida home insurance companies only accept Citizens Insurance policies and never write any new Florida home insurance business. Citizens Insurance risk is reduced, but some of these companies do nothing to help consumer choice.Finally, there is no doubt that these take out companies cherry pick the risks being taken out of Citizens Insurance. According to Citizens Insurance own website, these 14 companies are taking out 96% of their policies from the Citizens Insurance personal lines account, and only 4% from the Citizens high risk account. In general, most of the policies being taken out of Citizens Insurance are newer homes, farther away from the coast, with newer roofs, and better home construction. That leaves Citizens Insurance with the most risky, hurricane prone, right on the beach older type homes.Finally let's talk about the 14 Citizen Take Out companies as a whole. They are a great example of how smaller, regional comapanies now dominate the Florida home insurance market.
These 14 companies have an average surplus of $20 million. Surplus is the amount of money to Florida home insurance company has to pay claims after satisfying all of its liabilities. By comparision, State Farm Florida Insurance Company recently reported to surplus of $822 million. That means State Farm Florida has 41 times the average surplus of these 14 companies! American Strategic Insurance Company which started in the 1990's and has developed nicely into a leading player in the Florida home insurance market recently reported to surplus of $140 million. While each of the 14 takeout companies vary in size, some of these Florida home insurance companies are just getting started. This is the new reality in the Florida homeowners insurance market!
So where does that leave you if you want to get out of Citizens Insurance or you are trying to figure out if you should accept your Florida home insurance policy take out offer?
First, you should check the financial ratings of your Florida takeout insurance company with one of the major financial rating services.
Second, ask your Florida home insurance agent about the customer service of the Florida take out company and how many years they've been in business.
Third, ask your Florida insurance agent about the geographic distribution of the Florida home insurance policies being written by the take out company. Have they spread their risk out accross Florida and other states or are they writing Florida home insurance policies mostly on Miami Beach or some other area that is ground zero for Florida hurricanes?
Finally, consider another possibility. Find out if there are other Florida home insurance companies that want to cover your home. You might be able to get out of Citizens Insurance and avoid to thinly capitalized Florida home insurance company.
In today's market, you have to be proactive to find affordable Florida homeowners insurance with a good company.
You'll be glad you did!
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