TAMPA, Fla. — A fourth property insurance company operating in Florida has been in receivership since February. Southern Fidelity was unable to obtain reinsurance for the upcoming hurricane season, and a judge declared the company insolvent.
Two weeks after the deadline for property insurance companies to submit reinsurance plans to rating agencies and the state insurance regulatory office, at least one company has been unable to obtain funding for the next hurricane season.
Industry experts told ABC Action News they are concerned that a handful of other companies took advantage of a deadline extension. Florida insurance rating agency Demotech said it plans to complete reviews of the remaining 39 property insurers on Wednesday, June 15.
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Reinsurance is basically insurance for insurance companies. In order to support the financial burden of hundreds of thousands of households, insurance companies also receive financial support from reinsurance companies.
The Insurance Information Institute said it was told of 10 companies that were struggling to get enough reinsurance. Southern Fidelity Insurance Company lost its financial rating from Demotech on June 2.
Ratings manager Bob Warren told ABC Action News they know Southern Fidelity will not be able to secure reinsurance for the 2022 hurricane season.
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“It was obvious that they were struggling to put together an acceptable catastrophe reinsurance program and that resulted in the delisting,” Warren said.
A day after the ratings downgrade, the Florida Office of Insurance Regulation (FLOIR) filed a consent order declaring that Southern Fidelity is in “dangerous financial condition” and under a “plan of liquidation,” the company would offload its 78,000 Florida policies to other private insurers in the state.
However, ABC Action News learned Wednesday afternoon that the company no longer had enough money to support its existing policies in Florida and was now considered insolvent.
An affidavit reference from FLOIR indicates that Southern Fidelity would have to liquidate assets and that would still not be enough.
This means that the Florida Insurance Guarantee Association will take care of its existing claims and customers will need to purchase new insurance.
Lutz owner Mary Kilgore is among the 78,000 customers affected. This year, his bonus has increased by $2,602 to $4,393. As of June 13, she still hadn’t heard anything from Southern Fidelity regarding the future of her insurance.
“I haven’t heard a word about it,” Kilgore told ABC Action News reporter Stassy Olmos, “Nothing, nothing. You are the first person to say anything.
Southern Fidelity is just one of many property insurance companies that have gone out of business in Florida in the past six months. Avatar, St. Johns and Lighthouse are all on liquidation. FedNat dropped 68,000 policies, nearly half of its customers, and Lexington Insurance pulled out of the state.
Meanwhile, several others have stopped writing new business in parts or across the state, including Florida Farm Bureau, TypTap, United, People’s Trust, Universal, Heritage, Progressive, Safeport and Wilshire.
“When companies go into receivership or struggle, we see a greater percentage of these policies not finding a place in the private market, but making it to the citizens,” explained Michael Peltier, word of state-backed Citizens Property Insurance, which added about 6,000 new policies a week.
“We had a surge of about 12,000 fonts a few weeks ago,” Peltier explained.
Half of those customers were from Lighthouse, bringing the company’s total to nearly 893,000 policies as of June 13.
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“Many of our members have to get their appointment with Citizens Property Insurance in order to meet their clients’ needs, because in some cases they just don’t have any options,” Kyle Ulrich, President and CEO of the Florida Association. insurance agents said.
A study titled “Florida’s P&C Insurance Market: Spiraling Toward Collapse,” commissioned by the Senate Banking and Insurance Committee, found that of the $15 billion spent on disputed claims since 2015:
- 8% went to policyholders
- 21% to defense lawyers
- 71% to plaintiffs’ lawyers (roofing lawyers)
“Last year…we had over 100,000 property lawsuits in the state of Florida…the other 49 states combined had 25,000 property lawsuits,” Ulrich exclaimed. “So the reinsurers who put their capital here in Florida, to support the national insurance market, basically said, ‘We don’t do that anymore. “”
The Insurance Information Institute adds that even if businesses are able to obtain reinsurance, owners are likely to feel the pinch.
“Many Florida residential insurers buying reinsurance programs for 2022 are spending far more than expected because the reinsurance market views Florida as so volatile,” said Mark Friedlander, spokesperson for the Insurance Information Institute.
This cost will appear on the owner’s premiums.
“We understand that several companies, if they have not already done so, are considering filing significant rate increases to cover these higher reinsurance expenses,” he explained.
Kilgore is now working to get more information about the new insurance.
“A new company, great. How much will this charge me? ” she says.
We reached out to Southern Fidelity’s media contact multiple times for a statement, but received no response. Friedlander suggests accompanying customers contact their insurance agent for more information.
As lawmakers addressed reinsurance in a special session in late May, experts said it was not enough. Lawmakers have earmarked $2 billion of their general revenue for a Reinsurance Assistance Program (RAP) that insurance companies have access to, but many are not participating in because of the fine print.
The funds can only be used for hurricane damage, not wind or tropical storm damage, and companies must then reduce customer rates by June 30, the end of this month.
“These companies can barely survive, they are unable to give rates back. It’s just not a very realistic or achievable solution to the problem,” Friedlander explained.
US credit rating agency AM Best also recently released a study of the results of the special session, finding that it simply didn’t do enough to help.
Read the full report below.
AMBEST Florida report 03/06/2022 by ABC Action News on Scribd