I posted recently on new research from Harvard Business School, indicating many Florida home insurers were financially shakier than generally thought, at least partly due to a lack of high standards for Insurance company ratings.
Florida homeowners who think they are insured by a solid company, might not be.
Seven property insurers in Florida went bankrupt in 2021 and 2022. The bankruptcies left thousands of homeowners scrambling to get new coverage, which often came with a big increase in cost. Worse, many had outstanding claims for hurricane damage that had not been addressed.
Jacqueline Ravelo, a Miami homeowner, was among them. Her roof was damaged by Hurricane Irma in 2017. Her insurance company, Avatar Property and Casualty, covered the cost of some repairs. But the roof continued to leak and mold grew inside the house, she said. Ravelo sued Avatar to compensate her for further repairs, which she said came to $50,000. When they were on the verge of settling, she said, the company went out of business.
Avatar and the six other companies that folded had something in common: They had all been rated A (“exceptional”) or higher by Demotech, Inc., an Ohio-based insurance ratings firm. (One of those insurers was also rated A- by competitor AM Best Co. Inc.)
In fact, nearly 20% of the companies doing business in Florida that Demotech rated as financially stable went insolvent during the period 2009 to 2022, according to a working paper by researchers at Harvard University, Columbia University and the Federal Reserve that was released by Harvard Business School in December. In their data sample, 99.7% of the ratings issued by Demotech were an A or above.
That’s a signal, the researchers said, that Florida’s insurance market may be full of weak players and is even more precarious than already known.
“Our research shows that lax regulation and monitoring of property insurers makes Florida mortgage markets far more exposed to climate risk than people might think,” said Parinitha Sastry, an author of the report and an assistant professor of finance at Columbia Business School. The paper has yet to be peer reviewed.
property insurance collapse → cascade of housing market collapses, probably starting with the “condo commodity trading pit” that is Miami.
In NC, I just received a notice from my rental insurance company. Very short–if I lived in a trailer or manufactured home, my insurance was cancelled as of now. They were classified as “unacceptable risk” by their risk program. (Fortunately, I live in an apt, so still covered…for now…)