Attacking the rating model does not help the insurance crisis

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Florida is already experiencing a property insurance crisis. Why would Tallahassee want to make it worse?

In this state, never rule out what Republicans running for office might do.

This controversy began in July. Demotech, an Ohio-based financial analyst, rates Florida-based insurance companies on their ability to pay claims after hurricanes. Fannie Mae and Freddie Mac, the huge government-backed mortgage lenders, only recognize insurers with the highest possible rating.

Two months ago, reports indicated that Demotech was ready to downgrade at least 17 of the 40 common carriers it rates. While national insurers have significantly reduced their operations in the state, Florida has relied on new state-based companies, which have fewer resources than national carriers.

The news came in the middle of two seasons – hurricane and election. The downgrades could have left tens of thousands of Floridians scrambling for cover or waiting months for repairs in the event of a big storm.

Worse, Demotech seemed to dispute the argument that recent legislative reforms could alleviate the crisis. These reforms have generally received bipartisan support, but Democrats — notably the party’s gubernatorial candidate, Charlie Crist — are critical of the high cost of housing, including home insurance.

CFO Jimmy Patronis, who is also on the ballot, quickly called Demotech a “rogue agency.” Patronis wrote, “If (Fannie Mae and Freddie Mac) de-licensed a significant percentage of Florida insurers based on one company’s questionable ratings, it would create financial chaos for millions of Floridians.”

Insurance Commissioner David Altmaier, who reports to Patronis, chimed in, calling Demotech “monopolistic“. He and Patronis have created a temporary program that could help these insurers after any “disruptive downgrade.” The program will last through hurricane and election season.

A Demotech representative said Patronis and Altmaier were wrong to say the company threatened companies with demotions. Demotech made no “public announcement”. The letters were “an opportunity” for the companies to provide more information and “avoid the need for a demotion”.

The representative added: “A number of insurers have provided such information, enabling them to retain their previous ratings. This is exactly how the Demotech process has been conducted for decades.

Last Friday, the dispute went even further. A legislative committee allocated $1.5 million “to explore alternative methods and develop options for qualifying property insurance companies to achieve a satisfactory financial rating by federal mortgage standards.”

Translation: Florida wants to find — or create — a competitor to Demotech that will price companies more favorably and not cause political problems.

We have already seen this film.

After Governor DeSantis sought to control what state college faculty teach and eliminate tenure, the college accrediting agency criticized the moves. DeSantis and the legislature then demanded that state universities change accreditors, which could jeopardize federal student loans.

After President Biden attempted to mandate workplace COVID-19 vaccinations, DeSantis and the Legislature moved to create a state version of the US Security and Safety Administration. occupational health. Workers in Florida could end up with fewer protections.

After Friday’s hearing, Demotech released a statement highlighting its 36 years of working in Florida. The company called the decision to find a replacement “an unnecessary response to a problem that doesn’t exist.”

Indeed, this “problem” is political.

Patronis argues that Demotech doesn’t just assess companies’ creditworthiness. He says Demotech goes too far in assessing the state’s response to the property insurance crisis and finding it inadequate.

In a July 26 letter to Altmaier, Demotech said the company should consider these reforms. The state’s “litigation environment,” the letter says, “must be significantly and quickly improved” to maintain insurers’ solvency.

Demotech therefore agrees with Sen. Jeff Brandes, R-St. Petersburg. He compared this year’s special session legislation to treating “stage 4 cancer” in the property insurance market “with stage 1 solutions”.

Patronis made matters worse by referring to the “woke” — Republicans’ favorite all-purpose demonization — to insurance company policies. His vague speech alarmed insurance industry officials, who feared Patronis would now oppose discounts for tougher storms. In an email exchange with the Sun Sentinel editorial board, an aide said Patronis supports these discounts, without which many homeowners could not afford coverage.

But the Patronis office was unable to provide an example of these supposedly “woke” policies that are costing Floridians dearly. Instead, we have talking points.

Writing in the Sun Sentinel, Altmaier’s predecessor Kevin McCarty made the right point: in criticizing Demotech, Patronis and Altmaier are shooting the messenger.

For obvious reasons, the insurance commissioner should avoid politics. But DeSantis and Patronis can fire Altmaier, which could explain the commissioner’s praise for DeSantis’ “leadership” in “solving this problem.”

Florida’s insurance crisis could get worse with a healthy dose of political ideology and opportunism. Fix the problem, not the message.

So let’s talk about the fact that the property insurance market is about to collapse.

On the verge of collapse.

In a state particularly vulnerable to climate change, which will bring increasingly severe weather and the threat of further damage from rising sea levels. In a state that continues to inflict higher rates and generous taxpayer subsidies to insurers. Where lawmakers are weakening consumer protections on home and business owners in the name of fighting fraud, but where fraud remains rampant.

Without affordable and effective property insurance, Florida’s economy is at risk of collapsing. The already difficult task of housing its vast workforce could become impossible.

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Six property insurers who wrote policies in Florida are now missing. At least five others are in the process of being liquidated. Almost all of those who remain are refusing to renew large blocks of policies or institute large rate increases on their existing customers and new policies.

Fraud is a big part of the problem, no doubt. But insisting that the only solution is for consumers to suffer is short-sighted and potentially disastrous – and has never worked in the past. Why not try to devote more resources to investigating and prosecuting fraud, which everyone agrees is fairly easy to detect? Big arrests and long jail sentences could convince shady operators that sunny Florida isn’t the healthiest environment for them.

The Legislature should also discourage insurance companies that protect their profits by paying out claims that bear all the hallmarks of fraud – because looking the other way is the cheapest option in each individual case, even if in all in all, it encourages scammers and costs nearly $2 billion a year.

Lawmakers must also look for ways to make Florida’s shores more resilient. Review building codes regularly. Find more incentives for upgrades that protect homes from storm damage.

These are strategies that work. Florida needs to pursue them all – and look for other truly effective ways to create this shaky disaster of a property insurance market.

Because while 2022 may be (so far) calm in terms of tropical weather, we know storms are coming. And we know Florida isn’t ready — and won’t be — without a dramatic shift in priorities and direction.

The Orlando Sentinel Editorial Board includes Managing Editor Julie Anderson, Opinion Pages Editor Krys Fluker, and Viewpoints Editor Jay Reddick. The South Florida Sun Sentinel Editorial Board consists of Editorial Page Editor Steve Bousquet, Editorial Page Associate Editor Dan Sweeney, and Anderson. Send letters to [email protected].

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