Thursday, February 16, 2017

From the P&C Files: A Very Big Deal, Indeed

For want of a nail, so the story goes, a kingdom was lost. In this case, the "kingdom" may well be the Sunshine State's homeowner's insurance market:

"An Ohio insurance-rating company has warned that recent court rulings and skyrocketing losses ... have created an "uncertain operating environment" for Florida's property insurers and that it will downgrade the financial stability of 10 to 15 Florida-based companies."

So what's the deal?

As usual when we consider the Property/Casualty side of the business, I turn to our P&C Guru, Bill M. Here's the scoop:

When one has (for example) a roof damage claim, there's an "assignment of benefits" where the insured actually assigns the claim itself to the contractor.

In 2006, Florida carriers paid out about 400 of these claims.

In 2016, they paid out 28,000 of them.


As a result, a number of these carriers are really hurting, and that's about to create a rather serious ripple effect:

Homeowners who have their mortgages financed by Fannie Mae or Freddie Mac are required to not only have insurance on their homes, but the carriers they use must be at least A-rated. But now that the aforementioned ratings company has downgraded a number of these insurers, those mortgages are going to be in default. Now, in normal times, it'd be easy enough to just say "oh well, a-shopping I will go," but when you're talking thousands, or perhaps tens of thousands, of policyholders now flooding the market, well, that's going to be a problem. At the very least, agents are going to be very busy quoting and binding coverage.

But there's another potential problem lurking below the surface: capacity. That is, at any given time, there are only so many carriers who can take on only so much (additional) risk. Normally, that's not an issue, since there are lots of companies out there. But there aren't necessarily that many A-rated ones, and hence the problem.

Bill confirmed to me that, at the best of times, homeowners insurance in Florida is a challenge; now things promise to get "interesting."

Gee, thanks.

[Hat Tip: @JeremyWallace]
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