MoneyReal Estate News


Florida budgets $1.5 million in hopes of finding better options for rating home insurers

Insurance Information Institute calls it 'poor use of taxpayer money'
Posted at 4:27 PM, Oct 11, 2022
and last updated 2022-10-11 17:39:35-04

WEST PALM BEACH, Fla. — Demotech is a company with a major influence in the home insurance market.

There was some panic this past summer when there was speculation that Demotech might downgrade ratings for more than two dozen insurance carriers.

Now, state legislators have budgeted more than $1 million to find other options for rating Florida insurers.

However, some believe this won't stop insurers from dropping customers or going insolvent.

SPECIAL COVERAGE: Priced Out of Paradise

Royal Palm Beach homeowner Alyssa Freeman was among those who got caught in the insurance rating turbulence.

Alyssa Freeman, Royal Palm Beach homeowner
Alyssa Freeman is among the thousands of homeowners in Florida who have recently been dropped by their insurance carrier.

"We did everything right, and I still feel like we're being punished," Freeman said.

This summer she was dropped by FedNat insurance company after its rating was reportedly dropped by Demotech. Now, FedNat is the latest Florida insurer to go insolvent, which means Demotech saw the writing on the wall.

"Demotech is primarily the ratings service that rates all of our Florida domestics, as we call it, and insurance carriers in Florida," said Robert Norberg of Arden Insurance in Lantana.

Insurance companies get a report card from third parties that rate their ability to pay out claims. Norberg said for decades the Ohio-based company has been a giant in Florida.

Robert Norberg of Arden Insurance in Lantana
Robert Norberg outlines how Demotech impacts home insurance in Florida.

"Their ratings carry a lot of weight because if you can't get the A rating from Demotech, you can't do business in Florida and be approved by banks," Norberg said.

Consumers would not know they are about to be impacted until they get a letter in the mail from their lender saying their property insurance carrier is ineligible to provide coverage.

The ratings game caused Freeman to be dropped twice this year, forcing her to get a loan for a new roof just to be insured.

"I just don't know how other people are doing it, other homeowners are doing it," Freeman said.

Mark Friedlander of the Insurance Information Institute discusses Demotech
Mark Friedlander believes finding an alternative to Demotech could cause more home insurance problems in Florida.

Florida legislators have now budgeted $1.5 million to find an alternative to Demotech. A move that the Insurance Information Institute said is counterproductive.

"We feel this is a poor use of taxpayer money," Mark Friedlander of the Insurance Information Institute said.

So, is there any indication that choosing an alternative insurance rating company would produce any other type of results from what Demotech releases?

"The results would be negative," Friedlander said. "In other words, they would receive lower ratings than they currently receive from Demotech. That would cause much more turmoil in Florida's home insurance market."

That turmoil has led Freeman to state-run insurer Citizens Property Insurance.

"We got this policy that's OK, and we're still spending more money with a brand new roof and impact windows," Freeman said.

Friedlander adds that no matter which agency is rating Florida insurers the state is about to see a predicted $10 to $20 billion more spent on litigation costs due to Hurricane Ian. He said right now the focus should be on solving the litigation issues that continue to strain struggling Florida insurers.