Insurance coverage

State creates safety net to protect home insurance coverage

Florida homeowners won’t lose insurance coverage or face imposed policies if their insurers lose their financial stability ratings, at least during hurricane season.

The Florida Office of Insurance Regulation announced Wednesday that the state, through the Florida Insurance Guaranty Association and state-owned Citizens Property Insurance Corp., will provide 100% relief coverage for any unpaid claims. by a bankrupt insurer. The temporary program will be in effect during hurricane season, which ends Nov. 30.

In a news release, the office said the pledge satisfied an exception to mortgage requirements from federally backed loan guarantors Fannie Mae and Freddie Mac, which required borrowers to maintain coverage with A-rated insurers. .

If insurers’ ratings dip below an A, Fannie Mae and Freddie Mac have called on mortgage lenders to force expensive coverage on properties if homeowners are unable to purchase replacement A-rated policies immediately. Fannie Mae and Freddie Mac support the majority of home loans in Florida and nationwide.

But Fannie Mae and Freddie Mac each offer an exception “for an insurer who assumes, by endorsement, 100% of the insurer’s liability for any covered loss payable, but not paid by the insurer, due to insolvency.” , according to the press release.

“This innovative arrangement meets the requirements set by the secondary mortgage market,” Florida Insurance Commissioner David Altmaier said in the statement.

“In the event that we were to implement this temporary solution, consumers won’t need to seek coverage elsewhere, agents won’t need to move policies, and lenders can trust that these insurers will continue to respond.” mortgage requirements.

The arrangement, which creates what is known in the insurance industry as a “transition rider”, is an “elegant solution to a very disruptive problem that could potentially affect millions of policyholders”, Paul said. Handerhan, resident of the Federal Association for Insurance Reform. , a Fort Lauderdale-based consumer-focused watchdog group.

A “transition endorsement” is applied “when you have a business that has credit risk,” he said. “You can buy a policy that would guarantee compliance with the obligations of this policy.”

In this case, several events would have to occur for the state to cover a total loss, Handerhan said.

First, the insurer’s financial stability rating should be lowered. Second, the company should become insolvent. Third, the company should have open and existing receivables.

Under existing protections, the Florida Insurance Guaranty Association is required to cover individual losses up to $500,000.

The additional level of protection would make citizens liable for any amount of loss over $500,000.

Citizens, the state’s insurer of last resort, currently has $6.7 billion in reserves and, with reinsurance, $11.3 billion in claims-paying capacity, the spokesperson said. citizens, Michael Peltier.

So while the likelihood of the state having to pay the additional loss amount is low, the program assures Fannie Mae and Freddie Mac that the properties they support are 100% covered.

“It gives loan managers confidence that ultimately they will be cured,” Handerhan said. “There is no reason for force-imposed policies if the claims are guaranteed by the state.”

Altmaier’s office announced the program following a crisis triggered by letters from ratings agency Demotech notifying 27 Florida-based insurers that their A ratings, which stand for Exceptional or Unmatched, would be downgraded on July 26. The downgrade would place hundreds of thousands or possibly millions of homeowners out of compliance with Fannie Mae and Freddie Mac loan terms.

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Altmaier and Chief Financial Officer Jimmy Patronis released letters on Thursday criticizing Demotech and demanding to know whether the Ohio-based company was basing its decision on assessments of the overall health of the Florida insurance market rather than quantitative methodology. which she has used in the past.

On Monday, Demotech CEO Joe Petrelli announced he was delaying decisions to downgrade or affirm insurers’ ratings while he reviews additional information provided by affected insurers.

Demotech also sent a lengthy response to the bureau outlining its methodology and saying it did not deviate from its historical method of analyzing corporate financial stability.

The bureau’s Wednesday posting acknowledged Demotech’s response but said it had not provided any timelines for its rating decisions.

“The sudden loss of an acceptable financial position [Stability] The rating would have a significant and negative impact on insurance consumers, insurers, agents and the property insurance market in Florida. OIR remains committed to protecting Floridians and the property insurance market under this plan,” the statement read.

Kyle Ulrich, president of the Florida Association of Insurance Agents, who released a statement last week titled, “Is it time for Florida to turn the page on Demotech? said via email of the announcement, “FAIA would like to sincerely thank Governor Ron DeSantis, Chief Financial Officer Jimmy Patronis and Insurance Commissioner David Altmaier for their prompt response and leadership on this matter.”

Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071, on Twitter @ronhurtibise or by email at rhurtibise@sunsentinel.com.