Florida home insurance companies becoming financially insolvent is not an uncommon problem. Sunshine State Insurance Company, recently one of the 25 leading insurance companies selling new policies insuring homes in Florida, stopped selling new policies, after receiving a consent order from the Florida Office of Insurance Regulation (FOIR), to raise its surplus or shed its business. The FOIR consent order issued in March, came after Sunshine State reported it discovered accounting errors relating to reinsurance contracts from 2008 to 2011 that required correction. Sunshine State Insurance Company advised the FOIR that correcting the errors would negatively affect its surplus, as would fourth quarter losses. Customers of Sunshine State Insurance Company need to be concerned about the company being able to pay claims, and choosing another company to insure their home, as reported in this Insurance Journal article.

As any Florida property owner knows, finding companies to insure their homes and choosing the best insurance company, can be a challenge. The homeowners, condo, renters, or mobile home insurance companies available to them are often newer, very small companies not rated by AM Best, the most well-known company rating insurance company financial strength & solvency. If you are concerned about having substantial damage to your home covered by your insurance, particularly from a catastrophe, like a hurricane, where your insurance company may have many claims to pay, you want to do the best you can to avoid companies unable to meet their financial obligations. This blog post will discuss the issues regarding home insurance company solvency for Florida property owners, and show you one rating company that may be of great help with assessing an insurance company’s financial strength.

Several months ago, someone contacted me about the choices they had for insuring their Florida home. One company offered broader coverage, but had a poor complaint record. Another company had a better complaint record, but would require a separate policy from another company to cover windstorm damage. The company offering the windstorm coverage had only been in existence for a year, so the Florida resident had questions about its financial strength. Given the companies willing to insure homes in Florida, particularly in areas more susceptible to hurricane damage, this is a common & wise concern.

AM Best Financial Strength Ratings for Florida’s home insurance companies

After Hurricane Andrew in 1992 and accelerating after Katrina in 2005, Florida’s property insurance market changed dramatically. State Farm & Allstate, used to insure one-third of Florida homeowners before 2004. Since then, Allstate has withdrawn from the Florida property insurance market, as well as Nationwide, Hartford, and Travelers. State Farm & USAA are still in the market, but have cancelled many property insurance policies.

The big companies with the largest shares of the home insurance market in other states, won’t insure Florida homes, or are not selling new or additional policies, because of the high claims costs in the state. If you are lucky enough to be insured with State Farm, the largest home insurer in the USA by Far, its Florida subsidiary, State Farm Florida Insurance Company, is still unworthy of any of the “A” ratings (A-,A,A+,A++) for financial strength from AM Best, with a B+ (Good) financial strength rating, as can be verified at the State Farm Florida Insurance Company AM Best financial strength rating page on the AM Best website. I try to avoid companies with less than A- AM Best rating, but that is very difficult for Florida homeowners.

Although insuring with one of the major home insurers in the country, like State Farm or USAA, lends confidence in their ability to pay claims, most Florida homeowners do not have the option to insure with these companies, and almost all the companies willing to insure their homes are smaller companies not rated by AM Best.

Demotech Financial Stability Ratings for Florida home insurance companies

Another company, Demotech, Inc., rates many of the Florida property insurance companies. However, I don’t think Demotech ratings give consumers advance warning of FL home insurance companies in financial trouble. With Sunshine State Insurance Company, its Demotech rating was withdrawn on 3/14/2014, after the consent order was given by the Florida Office of Insurance Regulation. The Florida Herald Tribune has criticized Demotech for rating companies at A-(Exceptional) until the point of near insolvency. This is true of Magnolia Insurance Company in 2009, when Demotech suspended Magnolia’s “A- Exceptional” rating two weeks before regulators stepped in.
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Citizen’s Property Insurance Corporation, Florida State Government’s endorsement of financial adequacy, and the Florida Insurance Guaranty Association

Ironically, one of the most financially strong insurers of residential properties in Florida is the state-run insurer of last resort, Citizen’s Property Insurance Corporation, created to insure properties deemed too risky by other insurers. However, coverage may be more limited than the coverage offered by other companies, policyholders can be assessed a charge to pay for the company’s claims obligations, and the state is running a Citizen’s Property Insurance Corp. depopulation program to transfer Citizen’s customers to insurance companies in the private market.

As Florida transitions many of Citizens customers to private insurers, the state makes sure each of the takeout companies meet its standard for financial stability and surplus reserve funding. But as reported by the Miami Herald, “OIR officials, who were not available for comment Friday, have defended their vetting process, even though six of 18 companies approved for takeouts between 2007 and 2011 have failed. Seven non-takeout companies licensed by OIR also failed during that hurricane-free period.”

What happens when you have a claim with an insolvent or failed home insurance company? The Florida Insurance Guaranty Association steps in to pay you. However, this is not always a problem-free process, and claims are settled under the terms of the association, not the terms of your insurance policy with the insolvent insurer. This Sun Sentinel article reports “When a property insurer folds in Florida, customers with claims can expect a long wait for less money.”

Bottom line: Don’t rely on Florida state to confirm a home insurance company’s financial stability, or think it doesn’t matter if it’s the state guaranty fund to pay your claim.

Weiss Financial Strength Ratings may be your best guide to an home insurance company’s financial strength

The ratings firm I trust most is Weiss Ratings. Unlike AM Best, Standard & Poor, Fitch, & Demotech, the companies being rated do not pay Weiss to rate them, so there no conflict of interest to keep the insurance company paying you happy with the rating.

More of my auto & home insurance company reviews for companies selling coverage in Florida can be read at Florida Insurance Company Reviews.

Florida home insurance is expensive, so comparison shopping to make sure you are not over-paying for your auto insurance is a smart move. Some insurance companies charge a lot more than other companies for the same coverage, but no company has low rates for everyone. You have to shop with all the leading companies to find the company with the best rates for you.

How strong is the insurance company insuring your Florida home? Do you worry it will be insolvent when you need it? Tell me your thoughts. Comment or ask me questions on my facebook page. Follow me on Twitter for important insurance consumer news & new blog entries at CarInsWatch