TAMPA, Fla. — A fourth property insurance company operating in Florida is going into receivership since February. Southern Fidelity was unable to secure reinsurance for this upcoming hurricane season and a judge has declared the company insolvent.
Two weeks after the deadline for property insurance companies to submit reinsurance plans to rating agencies and the state’s office of insurance regulation, at least one company has not been able to secure funding for the upcoming hurricane season.
Industry experts told ABC Action News they are concerned about a handful of other companies who took advantage of a deadline extension. Florida’s insurance rating agency, Demotech, said they expect to complete reviews of the other 39 property insurance companies on Wednesday, June 15.
Reinsurance is essentially insurance for insurance companies. In order to take on the financial burden of hundreds of thousands of homes, insurance companies also receive financial backing from reinsurance companies.
The Insurance Information Institute said they were informed about 10 companies that were struggling to secure enough reinsurance. Southern Fidelity Insurance Company lost its financial rating from Demotech on June 2.
Ratings Manager Bob Warren told ABC Action News they knew Southern Fidelity would not be able to secure reinsurance for the 2022 hurricane season.
“It was obvious they were having a very difficult time putting together an acceptable disaster reinsurance program and that resulted in the rating withdrawal,” Warren said.
A day after the rating drop, the Florida Office of Insurance Regulation (FLOIR) filed a consent orderstating that Southern Fidelity is in “hazardous financial condition” and as part of a “wind-down plan,” 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 does not have enough money to support its existing Florida policies any longer and they are now deemed insolvent.
An affidavit referral from FLOIR states that Southern Fidelity would need to liquidate assets and it still would not be enough.
This means the Florida Insurance Guarantee Association will pick up its existing claims and customers will have to get new insurance.
Lutz Homeowner Mary Kilgore is one of the 78,000 customers affected. This year, her premium went up $2,602 dollars to $4,393. On June 13, she still had not heard anything from Southern Fidelity regarding the future of her insurance.
“I haven’t heard one word about that,” Kilgore told ABC Action News reporter Stassy Olmos, “Nothing, nothing. You’re the first person to say anything.”
Southern Fidelity is just one of several property insurance companies ending business in Florida in the last six months. Avatar, St. Johns, and Lighthouse are all in liquidation. FedNat dropped 68,000 policies, nearly half their customers, and Lexington Insurance pulled out of the state.
Meanwhile, several others have stopped writing new business in parts or all of the state, including Florida Farm Bureau, TypTap, United, People’s Trust, Universal, Heritage, Progressive, Safeport, and Wilshire.
“When companies go into receivership, or they're having difficulty, we're finding that a larger percentage of those policies are not finding a place in the private market, but they're coming to Citizens,” explained Michael Peltier, spokesperson for the state-backed Citizens Property Insurance, who has been adding about 6,000 new policies a week.
“We had a blip of about 12,000 policies a few weeks ago,” Peltier explained.
Half of those customers came from Lighthouse, bringing the company’s total to nearly 893,000 policies as of June 13.
“Many of our members are having to get their appointment with Citizens Property Insurance in order to fulfill the needs of their customers because in some cases, they simply don't have any options whatsoever,” Kyle Ulrich, president and CEO of the Florida Association of Insurance Agents said.
A study called 'Florida’s P&C Insurance Market: Spiraling Toward Collapse', commissioned by the Senate Banking and Insurance Committee found that of the $15 billion that went to litigated claims since 2015:
- 8% went to policyholders
- 21% to defense attorneys
- 71% to plaintiffs' attorneys (roofer attorneys)
“Last year… we had over 100,000 property lawsuits in the state of Florida… all 49 other states combined had 25,000 property lawsuits,” Ulrich exclaimed. “So the reinsurers who are putting their capital here in Florida, to support the domestic insurance market, have basically said, ‘We're not doing this anymore.’”
The Insurance Information Institute adds that even if companies are able to get reinsurance, homeowners will likely feel the impacts.
“Many Florida residential insurers that are buying reinsurance programs for 2022 are spending much more than they projected because the reinsurance market looks at Florida as being so volatile,” explained Mark Friedlander, a spokesperson for Insurance Information Institute
That cost will show up on homeowner’s premiums.
“We understand several companies if they haven't already done so, are planning to file significant rate increases to cover these higher reinsurance expenses,” he explained.
Kilgore is now working to get more information on new insurance.
“A new company, great. How much is that gonna charge me?” she said.
We reached out to Southern Fidelity's media contact several times for a statement, but have not received a response. Friedlander suggests customers with them should contact their insurance agent for information.
While lawmakers did address reinsurance in a special session at the end of May, experts said it wasn’t enough. Lawmakers devoted $2 billion dollars out of general revenue to a Reinsurance Assistance Program (RAP) for insurance companies to access, but many are not opting in because of the fine print.
The funds can only be used for hurricane damage, not wind or a tropical storm and it requires companies to then reduce customer rates by June 30, which is the end of this month.
“These companies can barely survive, they're not in a position to give rates back. It's just not a very realistic or very feasible solution to the problem,” Friedlander explained.
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- Property insurance companies continue to drop Florida customers
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- Florida homeowners will pay the price if lawmakers don’t agree on a fix for property insurance
The American credit rating agency AM Best also recently published a study on the outcome of the special session, finding that it just didn’t do enough to help.
Read the full report below.
AMBEST Florida Report 6/3/2022 by ABC Action News on Scribd