Gray Rohrer
Florida is seeking a second opinion on its property insurance companies.
A legislative panel voted unanimously Friday to spend $1.5 million on consultants to look for alternatives to Demotech, an Ohio-based ratings agency that angered state officials this summer when it threatened to downgrade 17 companies.
“Our hope is that we’re going to go forward with a process that is going to protect the insured properties in this state and benefit the insurance companies so we have more competition,” Deputy Chief Financial Officer Julie Jones told the Joint Legislative Budget Committee.
Demotech’s initial move to downgrade 17 Florida insurers in July angered Jones’ boss, Chief Financial Officer Jimmy Patronis and Insurance Commissioner David Altmaier, who each wrote letters to Demotech President Joseph Petrelli and federal housing authority leaders to condemn the move.
Altmaier also set up a program to use state-run Citizens Property Insurance Corporation’s surplus as reinsurance to pay the claims of any company downgraded by Demotech that later went insolvent.
The threat of downgrades put stress on Florida’s housing market because federally backed housing entities Fannie Mae and Freddie Mac require “A” ratings from Demotech to underwrite mortgages.
Demotech later backed off its downgrade threat for most of the companies, but still moved forward with downgrades for three insurers. One of them, Weston Property and Casualty, went bust in August.
That marked the fifth company to fail in 2022, a sign of the fragile nature of Florida’s property insurance market, which has seen large rate increases and moves from companies to cancel policies or withdraw from the state altogether. Insurers have cited increased litigation costs and roof claims, as well as the high cost of reinsurance, which have led to $1.5 billion in losses in the last two years.
Petrelli has defended his rating agency as a fair evaluator of Florida’s market. He called the LBC’s move “unnecessary.”
“Today’s action is an unnecessary response to a problem that does not exist,” Petrelli said in a released statement. “The reality is that when Hurricane Andrew devastated the state nearly 30 years ago, the rating agencies involved in Florida chose to step away — but Demotech stepped up.”
Jones noted the $1.5 million is a cap on the consultation contract, and that she expects many bids that could come underneath the cap. The consultants will provide recommendations to Gov. Ron DeSantis and the Legislature, which could act on those suggestions during the 2023 Legislative Session, which begins March 7.
5 comments
PeterH
September 9, 2022 at 3:28 pm
So…..the legislative panel is looking for a reviewing agency that will adhere to the legislature’s rating biases.
Are we living in the Soviet Union, Cuba, Brazil or Venezuela?
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Arthro
September 10, 2022 at 12:17 pm
Demotech was brought in to Florida in 1996 to provide A ratings for the slew of Florida domestic insurers that popped up after Hurricane Andrew. They were new, operated regionally or only in Florida, and could not get a rating from AM Best, the insurance industry standard for rating property insurers. For 2 decades, Demotech has participated in the scheme to promote a bunch of fly-by-night insurance companies by telling consumers and mortgage companies and insurance agents that these companies are financially stable. Now, Demotech decides to start telling the truth – lots of Florida domestic companies are financially unstable, and the roof scams and excessively litigation only drove them closer to the edge. The Florida legislature under Sprowels failed to pass meaningful legislation during this year’s regular legislative session to address roof scammers and greedy lawyers. DeSantis called for a special session, but they failed there, as well. As much as I don’t like Demotech or Kevin McCarthy, McCarthy is right. Don’t shoot the messenger (Demotech) for just finally telling us the truth.
Joe Petrelli
September 10, 2022 at 4:24 pm
Let’s not forget the years of 2004 and 2005, the two worst years for storms back to back – anywhere, ever.
Those Demotech rated carriers are still here, paying claims or defending claims.
Like us or not, we stepped up in 1996 when the rating agencies who were here stepped away.
The disparate, disproportionate level of litigation in FL is beyond belief, which is why it has yet to be fully addressed.
Emerson T
September 11, 2022 at 5:04 pm
No single solution will solve this crisis, nor will changing to a different rating provider. I’m in favor of multiple raters that complement the assessment process as objectively and transparently as possible.
Unwarranted politics in the legislature that continues to favor law firms egregiously aggravates the problems plaguing the industry. It’s slamming the people from all walks of life and the voters are soon to make it a top issue.
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