HomeHome InsuranceFlorida insurance market full of ‘low quality’ companies, study finds

Florida insurance market full of ‘low quality’ companies, study finds

TALLAHASSEE — The vast majority of small insurers operating in Florida are considered so financially weak that they wouldn’t typically meet federal guidelines allowing them to back mortgaged homes.

That’s a central finding of a study that also suggests that Florida consumers are being led to believe their insurers are much healthier than they really are.

The study, by researchers at Harvard University, Columbia University and the Federal Reserve Board, has not yet been peer-reviewed. But it was posted on a website for scholarly papers in December and has caught the attention of national and state insurance officials and observers.

There are few independent studies of Florida’s insurance crisis, and the report offers insight into one of the state’s vulnerabilities: its reliance on about 50 small insurers, covering about 70% of policyholders, that are usually rated by a single company.

That ratings company, Ohio-based Demotech Inc., was the target of a round of public retribution in 2022, after Gov. Ron DeSantis’ administration accused it of threatening to downgrade 17 companies that year.

The downgrades posed a threat to the state’s housing market as DeSantis was seeking reelection and gearing up for a presidential run. The mortgage giants Fannie Mae and Freddie Mac require insurance from highly rated companies, such as those that receive an “A” from Demotech. If 17 insurers suddenly didn’t qualify, a million Floridians could have been left scrambling to seek insurance policies.

Demotech was accused of being a “rogue ratings agency” by Florida’s chief financial officer, and U.S. Sen. Marco Rubio wrote that its ratings were “dubiously based.” Neither produced evidence Demotech did anything improper. Ultimately, four insurance companies went insolvent, and Demotech continues to be the industry’s primary ratings agency.

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