Florida homeowners finally have some new insurers to consider

Ted Herbert, a retired business professor from Rollins College, said he was shocked when he got a letter last month from his insurance company telling him that while they valued him as a customer they would not be renewing his policy.

“I checked to see why this was happening, thinking they thought my home was on the coast and subject to hurricanes or rising tide,” said Herbert, who lives in Winter Park.

But to his surprise, his insurance company identified him as a high risk for hurricane damage, along with 100,000 other policyholders.

“That’s puzzling,” Herbert said. “Why would we be at a higher risk than others?”

The closest he got to an answer was that the company was rebalancing its Florida portfolio “due to a reduction in our hurricane exposure.” Herbert is among the thousands of homeowners hunting for a new insurer after their companies shed them like winter jackets as hurricane season starts on June 1. And this year is expected to be one of the worst on record.

A forecast released Thursday by the National Oceanic and Atmospheric Administration gave an 85% chance of an above-normal hurricane season, which goes to Nov. 30, with up to 25 named storms.

Anyone freshly dumped back into the insurance market for one reason or another now has several new options, in addition to 19 other companies that are either keeping their rates the same or lowering them slightly, according to the state’s Office of Insurance Regulation.

“New residential insurers entering the Florida market will provide opportunities for consumers to shop their home coverage, a rarity in recent years,” said Mark Friedlander, spokesman for the Insurance Information Institute. “More competitive markets typically lead to more competitive pricing.”

Florida is the only state showing a high volume of new companies entering the market this year, Friedlander said. “Insurers feel they can profitably write home insurance in Florida due to the legislative changes that eliminated the drivers of legal system abuse and claim fraud that led to our state’s risk crisis.”

Several of the “new” companies aren’t really new, said Jeff Brandes, a former state senator from the Tampa Bay area who has been a relentless voice for insurance reform in Florida.

“If you look at the list of companies, you’ll notice that some are spinoffs or subsidiaries of existing Florida companies, while others are new to the state or are reactivating their presence here,” Brandes said.

Six new companies are start-ups, Friedlander said. Several were created by holding companies already operating multiple insurers in Florida, he said. Two were operating in another state.

Only one new company, Mainsail, is offering full lines of insurance for auto, home and business.

Four new companies are known as reciprocal insurance exchanges, which work something like a mutual fund, where policyholders are also owners, former OIR Commissioner Kevin McCarty said.

“In most recent years it’s been enormously difficult to find investors in the Florida market,” McCarty said.

Reciprocal insurance exchanges are a way to raise capital and, if profitable, the policyholders share the rewards, he said.

“They still assume risk but more flexibility getting startup capital,” he said.

Several of the new start-ups are by existing Florida domestic insurance companies.

Ovation Home Insurance Exchange, for instance, is a start-up of Florida Peninsula Insurance Company and Edison Insurance. All three share the same Boca Raton address.

The others are Manatee Insurance Exchange, a start-up by SafePoint of Temple Terrace; the Condo Owners Reciprocal Exchange, a startup of Tampa-based HGI Group, which also started up Tailrow Insurance; and Orange Insurance Exchange, run by a former Tower Hill CEO.

Some other companies in Florida following the reciprocal insurance exchange model include Tower Hill, Kin Interinsurance Network and Loggerhead Reciprocal Interinsurance Exchange, the Insurance Journal said.

The exchange insurance contracts to spread out risk, so that when one policyholder’s property gets damaged, other policyholders can help cover their losses.

The upside is policyholders generally have lower premiums and can offset operating costs. As part owners, policyholders have a say in the business operations. And they protect each other instead of receiving profits.

The downside is that if the subscriber pool is too small, premiums can go up.

Several existing Florida companies launching start-ups are also lowering their rates or keeping them the same, including Safe Harbor, Spinnaker, Florida Peninsula and Edison.

Startups have a clean slate with new investment opportunities and no backlog of litigated claims, making it possible to offer lower rates, McCarty said.

“You base your rates on expected future losses that are being driven by cases in litigation,” McCarty said. “A new company starting under new laws has no claims in the pipeline and doesn’t have to worry about the cost of litigation later on.”

The big three factors that affect rates are reinsurance costs, legal costs and catastrophic losses, said Lisa Miller, a former deputy insurance commissioner who lobbies on behalf of the insurance industry.

Legal reforms imposed by the Legislature will help a great deal, McCarty said. But the impact won’t be felt for a while yet because there are so many claims in the litigation pipeline.

Reinsurance remains a large driver of premiums because state companies that don’t have the capital to pay out a huge catastrophic hurricane rent capital from the reinsurance companies.

About 50% of every homeowner’s premium pays for the company’s reinsurance, which helps cover payouts from catastrophic events like major hurricanes.