New Problems With Florida Home Insurance Companies

While 2009 was a quiet year for Florida hurricanes there was no shortage of news from Florida home insurance companies.

For starters, almost half of all active Florida homeowners insurance companies reported net losses in 2008 - a year in which no major storms hit. Those losses continued for many companies into 2009. Among the reasons for these losses include lower revenue due to inadequate Florida home insurance rates along with rising expenses.

As 2009 unfolded, two Florida home insurance companies failed and were placed in receivership by the state after their cash reserves fell below the required minimum levels.

Homeowners insurance companies failing during non-hurricane years should send fear and panic across the state. Why? Because if these companies can't make money in non-hurricane years the odds increase dramatically that they will not be able to build up enough cash to pay your claim after a major Florida hurricane.

Taking a closer look at the company that failed in the spring of 2009 shows some very disturbing trends that could affect other Florida home insurance companies going forward.

For starters this company faced an onslaught of both new and reopened claims from Hurricane Wilma - a storm that hit Florida almost four years ago on October 23, 2005. These claims contributed to the ultimate collapse of this company because its backup reinsurance from 2005 was exhausted, leaving this small company on the hook to pay these claims from its own surplus.

In addition, this company had a large number of policies in many of Florida's southern, most hurricane prone counties in the state. To its credit, it also had helped many in these counties by its willingness to cover older homes.

What are the lessons from the two Florida home insurance companies that failed this year?

Even if your company meets the minimum capital and reinsurance requirements in the State of Florida it can still fail for many reasons including unexpected reopened claims from prior years and inadequate risk diversification across both Florida and into other states.

Here are the things you should look for when considering a new Florida home insurance company.

Most of the companies still writing new Florida home insurance business are based in Florida. Look for companies that are diversifying their policy base across most of the 67 counties in Florida so that they have balanced their exposure in the southern coastal counties with policies written in the northern interior counties.

Try to find companies that are looking to expand their home insurance business into other states. Some Florida home insurance companies that came into existence in the mid 1990's are beginning to do this which is an encouraging trend. Companies that are spreading out their risk into other parts of the country have a better chance of surviving the next round of hurricanes.

Learn as much as you can about the company's customer service and claims processing. If a company you are considering has outsourced this work find out what their customer service history is and how many complaints they have received relative to others in the industry.

Finally, find out how much surplus the company has available to pay claims and check on their ratings with the major financial rating services. Many Florida home insurance companies being granted premium rate increases should be able to show that they can grow their surplus over time - especially if we continue to experience below average Florida hurricane activity.

You should take note of those Florida home insurance companies that were able to stay profitable in 2008 and 2009 when many other companies lost money - together with those that demonstrate the ability to use higher rates going forward to increase their surplus.

In this brave new world of newly formed start-up Florida insurance companies, doing this research will give you the best chance of being paid quickly and fairly after the next round of Florida hurricanes.