Posts Tagged ‘Florida Homeowners Insurance’

Florida Home Insurance Cancellations This Year Could Send You Scrambling for Coverage

February 12, 2010

Florida home insurance cancellations are going to continue in the coming year so be on the lookout.

The largest private home insurance company in Florida is going ahead with an approved program to cancel 125,000 home, condo, and mobile home policies.  While this is good news compared to the estimated 700,000 policies it was originally planning on non-renewing, this is still a significant number of Florida homeowners who are going to be scrambling to find new coverage.

Another large national company announced plans late last year to cancel another 60,000 policies as it continues to cut back its exposure in Florida.  Perhaps these cancellations will be more easily absorbed because the company arranged for a regional Florida home insurance company to pick up those policies.  However, there is no guarantee that the policyholders who lose their coverage will be able to find a replacement.  It will be especially difficult for homeowners in Florida’s southern coastal counties such as Dade, Broward, and Palm Beach to find alternative coverage.  It will also be difficult for those with older Florida homes and those built with wood frame construction to find replacement coverage.

Last but not least, home grown Florida insurance companies continue to evaluate their existing risks and to selectively cancel policies.  A portion of this is due to their reinsurance agreements which limit how much risk they can assume in certain zip codes.  Sometimes they make a business decision to cut back on coverage especially in the South Florida counties on the coast.  Finally, some of the newer Florida take out insurance companies eventually reject policies that they’ve previously taken out of the state run insurance company after discovering risks that they don’t want to be exposed to.  This could be a poorly constructed home or a home that hasn’t been property updated or that has not been maintained in good condition.

If those aren’t enough reasons to be concerned about cancellations during the coming year there is one other development that could lead to more cancellations.  A large number of homeowners insurance companies in Florida plan to implement an ambitious plan to re-inspect homes that they currently insure.  Some of those homes could be in poor condition and may not be adequately protected enough to prevent hurricane damage to the home.  If your home is re-inspected by your present insurance company and they find a significant difference between the condition of your home and what their records show, you could join the ranks of those who have been cancelled in the coming year.

Finally, if your Florida home insurance policy is cancelled during the coming year, it is important to pay attention to the quality of the new companies you are considering.  Three companies failed during the past year and had to be taken over by the State of Florida.  In addition, over half of the remaining companies still open for business lost money in the last twelve months.  If you are cancelled during the coming year, it is not the time to buy your Florida home insurance simply on price.  It is essential that you shop around.  Select the wrong company and you could be waiting a long time to be paid after the next Florida hurricane.

As the year unfolds, pay close attention to the news and to your mail box.  This might be the year that you have to face the prospect of losing your Florida homeowners insurance coverage.

Michael Letcher is an executive in the Fortune 500.  Use his on-line consumer database to find low cost Tampa homeowners insurance.  Get his free newsletter and learn about low cost Tampa home insurance at =>


Homeowners Insurance in Florida – More Problems Ahead in the Coming Year

February 12, 2010

Don’t be fooled by the peace and quiet Florida has enjoyed during the last three hurricane seasons.  There will be plenty of storms in the Florida home insurance market in the coming year.

To begin with more rate increases are on the way.  The state’s largest insurer of last resort will be passing along increases of up to 10% depending on where you live.  Private Florida home insurance companies have been approved for increases ranging from 10-15%.

Those rate increases might not sound alarming to you.  But they are happening during one of the worst economies in our lifetime.  In addition, Florida recently passed Texas with the highest home insurance rates in the nation.  So a 15% increase on a very high premium to begin with could bring you a nasty surprise.  Finally, while these are average rate increases, expect to pay a lot more if you live in South Florida Counties such as Dade, Broward, or Palm Beach.

Florida home insurance policy cancellations will continue to occur during the coming year.  The largest private Florida home insurance company recently received approval to cancel 125,000 policies over the next two years.  Late last year, another national carrier received approval to drop 60,000 policies.  Again, there could be a lot more cancellations in major areas such as Miami, Tampa, and West Palm Beach especially for older homes and homes close to the coast.

Watch for fewer discounts in the coming year.  Fewer discounts could add to the 10-15% rate increase you will already be facing.  Your company could discontinue discounts you’ve been enjoying for being claim free and multi-line insurance discounts.  Last but not least, Florida home insurance companies are concerned about the wind mitigation discounts you get for replacing your roof or installing hurricane shutters.  If they are successful in challenging those discounts in the upcoming session of the Florida legislature, you could end up paying a lot more.

Homeowners insurance companies in Florida are beginning to fail at an alarming rate – especially when you consider that we’ve been hurricane free for the past three years.  Last year three companies failed financially and were taken by the state.  During the past twelve months over half of all the active Florida home insurance companies in the state lost money.  As a consumer you might not care about that.  But you will if these companies don’t have enough money to pay your claim after a major hurricane.

Finding multiple companies willing to cover you is going to continue to be difficult during the coming year.  Besides the fact that the larger companies are continuing to cancel policies, new companies are not being created fast enough to pick up the slack.  The most difficult homes to cover will continue to be old homes, coastal homes, and wood frame homes.  Coverage will also continue to be difficult to get in the sinkhole prone counties of Pasco, Hernando, and Hillsborough.

All of these developments mean that you should expect Florida home insurance to cost more this year while it continues to be hard to find.  Even worse, you could pay high insurance rates and still end up with a company that won’t have the money to pay your next Florida hurricane claim.

Now more than ever, it is essential that you don’t buy Florida home insurance just on price.  If you do, you will have no one to blame but yourself if you have trouble getting paid after the next Florida hurricane.

Michael Letcher is a Fortune 500 senior executive and a licensed CPA.  His on-line buyers guide can help you find low cost Tampa homeowners insurance.  Find out the secrets to low cost Tampa home insurance in his free newsletter at =>

Florida Home Mortgages – What Would Happen if Everyone Defaulted?

January 3, 2010

Most of us are not interested in talking about Florida homeowners insurance.  Even though the Florida property insurance market is still in a state of chaos, we would prefer to pay our bill and forget about insurance until the bill comes again in the mail next year.

So it’s no wonder that when a story ran in the Florida media earlier this year about two key financial rating agencies (A.M. Best and Demotech) threatening to downgrade the ratings of dozens of Florida homeowners insurance companies unless something was done about the Florida Hurricane Catastrophe Fund shortfall, no one paid any attention.

If these rating agencies follow through on their threat to downgrade Florida home insurance company ratings, the impact would be disastrous for all homeowners in the state.

Let’s start with a look at how this potentially lethal situation was created.

The Florida Hurricane Catastrophe Fund (Cat Fund) charges all Florida home insurance companies a premium for reinsurance – which is insurance for insurance companies.  It is a simply a mechanism that allows insurance companies to be reimbursed by the Cat Fund, once claims from a major Florida hurricane event exceed certain levels.

To address rapidly rising Florida homeowners insurance costs, the Florida Legislature passed laws in 2007 that increased the obligations of the Cat Fund by an additional $12 billion over previous levels.  That move made the Cat Fund directly responsible for up to $28 billion in losses and led to some modest reductions in Florida home insurance rates.

The change in the Cat Fund seemed like the right thing to do at the time, but there were problems with this approach.  The Cat Fund relies on the full faith and credit of the State of Florida to be able to issue bonds at reasonable interest rates to cover the cost of major storms.  That ability to borrow is what allows the Cat Fund to charge less for the reinsurance than insurance companies would have to pay in the private market for this coverage – and in theory at least would lead to lower insurance rates.

In perfectly functioning bond markets, this approach might have worked successfully for many years.  However, our current financial crisis has changed all of that.  Even the most credit worthy governments across the country cannot borrow all that they need from the bond markets.  The Florida Cat Fund is no exception.

As the Cat Fund looks at the $28 billion in exposure that it faces, it has publicly acknowledged a shortfall against that responsibility of an estimated $18 billion.

That shortfall means that it is very possible that after your Florida home insurance company satisfies its primary claim obligations after a hurricane, it can’t rely on the Florida Cat Fund to reimburse it for losses above those levels.  In plain English, that means that some Florida homeowners won’t have their hurricanes paid in a timely fashion.

So why are the financial rating agencies concerned about this shortfall?

When the rating agencies issue their ratings on Florida home insurance companies they know that both you and your bank rely on those ratings to help predict the financial ability of your insurance company to pay your claim promptly and satisfactorily.  These rating agencies factor into their ratings the quality of the reinsurance contracts among other things – regardless of whether those contracts are purchased in the private market or from state agencies like the Florida Cat Fund.

When the rating organizations assess the $18 billion shortfall in the Florida Cat Fund, they question the reliability of the reinsurance being provided and they know that there is an increased chance that the insurance company won’t be able to meet its obligations.  That is why they have threatened to downgrade the ratings of all the Florida home insurance companies that rely on the Cat Fund.

So what happens to you in May of 2009 if this downgrade happens?

You will face nothing short of a major disaster – even if you pay your mortgage in full every month.

Here is how this shocking scenario would play out if nothing is done to address this.

The Florida Legislature does not address the Florida Hurricane Catastrophe Fund shortfall in its current 2009 session.

AM Best and Demotech lower the ratings of all Florida homeowners insurance companies in May of 2009.

When your mortgage company or bank finds out about these rating downgrades, it will let you know right away that you need to find a new more highly rated insurance company or else you will be found to be in default under the provisions of your mortgage.

Because all the Florida home insurance companies are required to buy certain layers of reinsurance from the Cat Fund, you won’t be able to find even one company that will satisfy your Florida mortgage lender.

Your Florida mortgage company will take action to protect the lien that it has on your home by putting forced placement insurance coverage on your home at about 4 times the amount that you had been previously paying for your Florida homeowners insurance – so if the homeowners insurance that you had been buying from your company that had its ratings downgraded was $4,000, the bank will step in and buy a forced placement policy from a company of its choosing that is now going to cost you $16,000 per year!

And here’s the worst part.

You’ll pay four times more than the cost of your traditional Florida home insurance and you won’t recover any money for your home or personal effects if you have a major Florida hurricane claim.  Forced placement coverage only covers the unpaid balance of your mortgage and it will be paid directly to the bank, not you!

You will be financially on the hook for paying your bank the cost of that $16,000 a year policy every month until you are able to find a replacement Florida homeowners insurance company that has a rating that is acceptable to your mortgage company.

During this period of turmoil all Florida real estate transactions will come to a complete stop – which will further worsen the housing crisis in Florida.

This downgrade in the insurance company ratings is expected to happen by May 15, 2009 if the Florida Legislature does not adequately address the shortage in the Florida Cat Fund – with only two weeks remaining before the start of the 2009 hurricane season.

Unless you feel like $16,000 is pocket change to pay just to protect your lender’s interest in your property, now is a perfect time to let your Florida Legislators know that you want them to fix the mess that they created in 2007!


Michael Letcher is a corporate executive and a licensed Certified Public Accountant.  His on-line guide can help you find affordable Florida home owner insurance.  Get all the secrets to low cost Florida insurance in his free newsletter at =>

State Farm Florida – How to Respond to the Big Announcement

January 3, 2010

State Farm Florida Insurance Company announced in January that it is leaving the Florida Property and Casualty Insurance Market.  The only thing left to be decided is when the cancellations will begin.

An estimated 700,000 State Farm Florida home insurance policies that are expected to be cancelled over a two year period – that’s over 29,000 policies that will be cancelled each and every month for two years.  Regardless of your perspective, this is the most significant event that has ever occurred in the history of the Florida homeowners insurance market – and you could not pick a worse time for this to happen.

To begin with, many of the home insurance policies that will be dropped by State Farm Florida will occur at the exact same time that Citizens Property Insurance will be moving forward with higher rates in 2010 as required by law.

Although dumping on big insurance in Florida has become one of our favorite things to do, here are some little known facts that won’t ever make the coverage of State Farm Florida‘s planned withdrawal from the state:

Customers of State Farm Florida love this company, its customer service, the multiline discounts, and the fast and fair claim service they received from the company after the 2004/2005 Florida hurricanes.

When State Farm Insurance FL customers are asked to rate their overall satisfaction with the company on a “1-10” scale, many rate the company as a “10” even if their policy is being cancelled by the company!

Although State Farm Florida’s 47% rate increase was turned down prior to their withdrawal announcement, most of the data that we are collecting says that the annual premiums State Farm Florida policyholders are paying are among the lowest in Florida – partially from the multi-line discounts and also due to the significant wind mitigation credits that many customers are receiving.

None of the above changes the fact that State Farm Florida is leaving the Florida home insurance market.  Given this reality, here is what you need to be aware of if you are a State Farm Florida policyholder and want to take proactive steps in response to the company’s announcement.

To begin with, your State Farm Florida Insurance Agent is not allowed at the present time to present you with any other alternative Florida homeowners insurance companies except for Florida’s state run insurance company of last resort – Citizens Property Insurance Corporation – which has publicly stated that it is currently underfunded and overly dependent on hostile financial bond market borrowing on unfriendly terms in order to pay major hurricane claims.

As you look for companies to replace your State Farm Florida home insurance policy, many of you will be facing increases that range from 70% to over 200% on your annual premium.

Watch for dramatic differences as you move to a new Florida homeowners insurance company – both in terms of the size of the financial surplus it has available to pay your claim and in the headcount it has available for customer service and claims processing.  State Farm Florida has more financial surplus available to pay its claims than the majority of the 40 other companies that are still writing new Florida homeowners insurance business combined!

Much of the advice that you’ve received as a State Farm Florida policyholder has been that you should not take any action now and that you should wait for your Florida home insurance cancellation notice.  If you take that advice you could be very sorry in Florida’s dysfunctional home insurance market:

To begin with, you’ve probably heard reports about many Florida homeowners insurance companies that have stated that they are interested in picking up your State Farm Florida homeowners insurance policy.  Don’t assume that there will be plenty of policies with a new company to go around when your State Farm Florida policy is cancelled.

Some of the companies that initially stated their interest in picking up State Farm Florida policies have tightened up their underwriting guidelines and become more selective about the kind of homes they will accept.  Since the State Farm Florida exit announcement, two companies that had expressed interest in taking on some of the policies have had their licenses temporarily suspended.

Many of the State Farm Florida policies being cancelled are homes that were built between 1950 and 1981 – prior to the higher wind standards in the Florida Building Code improvements made in the 1990’s – not exactly the kind of homes that Florida home insurance companies are going to be anxious to cover.

Because of the financial shortfalls at both Citizens Property Insurance Corporation and The Florida Hurricane Catastrophe Fund, if there is a major Florida hurricane during the 2009 season, don’t expect any companies to be willing to pick up your policy when State Farm Florida cancels it starting in 2010.

Here’s what you should do right now if you are a State Farm Florida home insurance policyholder:

Don’t wait until you receive your cancellation notice – start shopping for a new company right now!

Call several Florida independent home insurance agents that represent multiple homeowners insurance companies and find a new private insurance policy before June 1st when the 2009 hurricane season begins.

Do in depth research on all of the Florida home insurance companies you are considering.  If you get a letter from a Florida home insurance company offering to take over your insurance policy, don’t accept the offer of new coverage until you have thoroughly checked out the new company.

Don’t accept your State Farm Florida home insurance policy being moved into Citizens Property Insurance Corporation unless you have personally done the research and confirmed that there aren’t any private Florida home insurance companies who want to cover your home.

Finally, as someone who knows the score in the Florida property insurance market, you know that finding a new company in Florida has never been easy – from the time of Hurricane Andrew in 1992 and continuing through to today.

That’s why it is essential that you start shopping now for a new policy.  Don’t wait for State Farm Florida to cancel your policy.   If you do, you’ll have the unpleasant experience of scrambling and competing with 29,000 other State Farm policyholders who will be looking for a new Florida home insurance policy at the exact same time that you are.

It’s a game of musical chairs that you have to avoid at all costs!


Michael Letcher is a Fortune 500 executive and a licensed Certified Public Accountant.  His on-line guide can help you find affordable options to Citizens Insurance.  Get all the secrets to low cost Florida insurance in his free newsletter at =>

Will the State of Florida Collapse?

January 2, 2010

The State of Florida is facing the most serious crisis in its history.

With an estimated budget shortfall of $2.3 billion, the State of Florida is one of eight states where a deficit of over $1 billion is expected.  The budget shortfall is being blamed on everything from lower collections on documentary stamp taxes from a slumping real estate market to reduced sales taxes on the sale of automobiles.  Massive declines in tourism, consumer spending, and corporate earnings have all resulted in lower sales and corporate taxes.  And in particular, for the first time in decades there are fewer newcomers entering the state.

Florida property taxes are still very high.  Voters have seen little relief from Amendment 1 passed earlier this year.  While taxable home values have come down due to the collapse of the Florida real estate market, this has been more than offset by higher tax rates and an increase in taxes that are not based on the value of the home.  The net result is that Floridians still face staggering Florida Property tax bills – even in a depressed real estate market.

Florida homeowners insurance is still expensive and hard to find.  Legislation passed in 2007 put much of the risk of a major Florida hurricane on the backs of Florida taxpayers.  The Florida Hurricane Catastrophe Fund offered low cost reinsurance to insurance companies and assumed an additional $12 billion in risk.  Now the Cat fund says that it doesn’t have the borrowing capacity to meet its obligations – estimating a possible shortfall of up to $15 billion.

The State of Florida was so concerned about the inability of the Cat fund to raise money to cover a major hurricane earlier this year that it paid Warren Buffett’s Berkshire Hathaway Company $224 million.  In return, Buffett’s company guaranteed that the state would be able to raise $4 billion in bond debt if a major hurricane produced enough damage to trigger the Cat fund.

The situation at the state run insurance company in Florida – Citizens Property Insurance Corporation isn’t much better.  Citizens Property Insurance has some of the highest risk homes in Florida and doesn’t collect enough in premiums for the risk that it takes.  It has $433 billion of property exposure on its books with a $4 billion surplus on hand to pay claims.

Policyholders of Citizens face two issues.  First there is the risk that Citizens Property Insurance can’t meet its primary claim obligations for lower level storms because of its own trouble raising cash in the bond market.  Second, once losses reach a certain level, Citizens Insurance will look to the Cat fund for reimbursement after a series of major Florida storms – a fund that just might not have the cash needed by Citizens.

While all of these developments in Florida are serious, there is really nothing new about a government that doesn’t live within its means and takes on obligations that it doesn’t have the cash on hand to meet.

What is new and should send shockwaves across Florida is the fact that the state cannot borrow in today’s bond markets the way it has been able to in the past.  In effect, the State of Florida has maxed out its credit card.

Why is it so hard for states like Florida to borrow in the current bond markets?

Issuing bonds used to be easy for state and local governments.  It was a simple process and no one thought twice about it.  That’s changed since the failure of the subprime mortgage market.

Despite a very low bond default rate, it is very difficult to attract bond investors these days.  Companies that used to insure new bond issues have had their ratings downgraded.  That’s caused bonds to be less liquid and not attractive to investors.  And it makes states like Florida have to offer higher payments for interest and principal in order to sell out a bond issue.

With severe revenue shortages and a frozen bond market all Floridians should be demanding that the state keep tightening its belt.  That process has already started.  But you should anticipate strong opposition to spending cuts from those who think big government is good.

These groups will demand that Florida lawmakers increase taxes rather than making additional cuts in spending.  Don’t underestimate where this could lead.  Many items that are currently exempt from Florida sales tax could suddenly be taxable in this crisis environment.  Expanding the sales tax could lead to new taxes on everything from Internet sales to various types of consulting services.  All of which would dramatically increase our own cost of living and make it that much harder for Florida to emerge from this recession.

And never underestimate the risk of Florida legislators dealing the final death blow to the state – instituting a state income tax.

It is up to all of us to make sure that never happens!

If there is one lesson that all governments need to learn during the current financial crisis it is this – there is nothing wrong with the “pay as you go” system.  It will always stand the test of time no matter how shaky the bond markets are.


Michael Letcher is a former Bank of America and W.R. Grace executive and is a licensed CPA.  Floridians use his on line database to find other options to Citizens Property Insurance Corporation for their homeowners insurance in Florida.  Subscribe to his free newsletter and get the truth about Citizens Property Insurance Corporation by visiting =>