Senator Sheldon Whitehouse has been holding hearings on the potential damages to property values due to Insurance Companies fleeing damages from climate extremes.
Turns out that there are a number of new, smaller insurers setting up shop in Florida, that may, or may not, be reliable.
Bloomberg describes basic issue below, Senator Whitehouse expands, above.
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.
The authors say this rating system also allows lenders making the riskiest mortgages to pass their liability on to everyone else.
I wish Sheldon was running for Whitehouse.
Sen. Sheldon Whitehouse is the grownup in a Congress full of bickering idiot children.
Sheldon Whitehouse must feel like Cassandra, when she predicted “That fucking wooden horse will bring about the destruction of Troy.”