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Florida’s crumbling homeowners insurance market is exposing one of the state’s long-running flaws: its reliance on a single company to certify the majority of the state’s insurers.

For the last few weeks, state regulators and Gov. Ron DeSantis’ administration have been scrambling to contain the fallout after the state’s primary ratings agency, Ohio-based Demotech Inc., warned of downgrades to roughly two dozen insurance companies, according to the state.

The downgrades would have triggered a meltdown of the state’s housing market, a pillar of Florida’s $1.2 trillion economy. Without the ratings, a million Floridians could be left scrambling to seek new insurance policies, possibly triggering a housing crisis in the middle of hurricane season and months before the November election.

State regulators believe they’ve staved off a disaster, at least temporarily, but the episode has observers questioning how it was handled and how the state could be so reliant on a single company few have ever heard of.

“If this was a movie title, it would be ‘The Sum of all Fears,’ ” said Sen. Jeff Brandes, R-St. Petersburg, who has been warning for years that the state’s property insurance market was heading toward collapse.

The DeSantis administration cobbled together a short-term fix to allow insurers to stay afloat by using state-run agencies to back them up. And it went after the ratings agency, Demotech, and its president and co-founder, Joe Petrelli, calling it a “rogue ratings agency” and urging federal officials to disregard the company’s actions.

GHOSTS OF HURRICANE ANDREW

The drama is just the latest problem as the state experiences its biggest insurance crisis since 1992′s Hurricane Andrew.

In the last two years, insurance policies for more than 400,000 Floridians have been dropped or not renewed. Fourteen companies have stopped writing new policies in Florida. Five have gone belly-up in 2022 alone. The record, set after Hurricane Andrew’s devastation, is eight in one year.

The latest was Coral Gables-based Weston Property & Casualty, which leaves 22,000 policyholders — about 9,400 in South Florida — scrambling to find new insurance companies.

Costs have also skyrocketed. In 2019, when DeSantis was sworn in, Floridians paid an average premium of $1,988. This year, it’s $4,231, triple the national average, according to an Insurance Information Institute analysis.

In several ways, today’s problems have their roots in the decisions lawmakers and regulators made after Andrew, experts say.

The storm reshaped Florida’s insurance landscape, forcing several companies out of business and others to flee the state. With homeowners struggling to find coverage, the Legislature created the state-backed Residential Joint Underwriting Association — essentially a precursor to today’s Citizens Property Insurance — to insure homes that couldn’t be covered by private carriers.

The program quickly became one of the largest insurers in the state, and concerns grew that it was taking on too much risk. State officials provided incentives for companies to take over its policies, and a number of new, smaller insurers got in line.

The new insurers faced a problem, however: They were unable to get a financial stability rating from a qualified ratings agency. Homeowners with federally backed mortgages, such as Fannie Mae and Freddie Mac, are required to have highly rated property insurance companies protecting them.

State insurance and banking regulators, plus Fannie and Freddie, looked to various ratings agencies for help. Only Demotech was willing to rate the new insurers. The company, based in Columbus, Ohio, was founded in 1985 by Petrelli and his wife, Sharon Romano Petrelli. Its “A” rating was approved by both Fannie and Freddie.

Since then, Demotech has been the primary ratings agency for Florida-based insurers, which dominate Florida’s market and which pay Demotech to rate their financial strength. Although other ratings agencies, such as New Jersey-based AM Best, provide ratings for some insurers, no one has stepped in to compete with Demotech.

Without Demotech, Florida would not have an insurance market, said Kevin McCarty, the state’s insurance commissioner from 2003 to 2016.

“Regardless of whether you agree with them, they serve an invaluable service to the state of Florida and across the wider economy,” McCarty said.

‘WE NEVER GOT A PHONE CALL’

Florida’s reliance on smaller insurers has caused homeowners to ride out a series of booms and busts ever since.

Smaller insurers are mostly able to survive Florida’s hurricanes because of reinsurance — essentially, insurance for insurance companies. When a storm hits, an insurer might be on the hook for a few million dollars, while the reinsurer pays the rest.

But the smaller companies in particular are vulnerable to increases in the cost of reinsurance. A series of storms in 2004 and 2005 wiped out a number of insurers and drove up the cost of reinsurance, putting firms in a pinch. Several have also gone out of business because of mismanagement or incompetence.

In the last few years, insurers and state regulators have blamed excessive lawsuits for their woes, and Petrelli has been an outspoken critic of the Legislature’s inaction to curb litigation.

He has cited statistics from Florida’s insurance commissioner that from 2016 to 2019, Florida accounted for between 7.75% and 16% of the nation’s homeowners’ claims but between 64% and 76% of the nation’s litigated homeowners’ claims. Critics say insurers’ problems are more complicated.

DeSantis called a special session of the Legislature in May to pass insurance reforms focused on stabilizing the market and reducing lawsuits, but Petrelli said it wasn’t enough.

On July 18 and 19, Demotech sent private notices to at least 17 Florida insurers, according to state officials — almost half of the companies it rates in Florida — warning that the insurance environment was worsening and that without corrective action, the companies faced a ratings downgrade. (Demotech has not said how many companies received the warnings.)

A ratings downgrade of that magnitude would create shock waves. Fannie and Freddie back about 62% of all residential mortgages, according to the Florida Association of Insurance Agents.

Demotech’s “A” rating and above, which indicates a 97% certainty a company could afford all the claims from a 1-in-130 year hurricane, is approved by Fannie and Freddie, while its “S” rating, the next step down, is not.

A reduction from an “A” rating would force homeowners to find a new insurance company — and fast. Otherwise, the bank holding the mortgage could “force place” a homeowner with whatever insurance company they can find, which is usually far more expensive and offers less protection. That could include placing a homeowner with what’s known as a “surplus lines” insurer, which doesn’t need state approval for their rates. They can charge whatever they want.

“Getting force-placed insurance is terrible for a homeowner. You’re paying double the premium and getting half the coverage,” said Paul Handerhan, president of the consumer-oriented Federal Association for Insurance Reform, based in Fort Lauderdale.

Many homeowners would likely end up with Citizens, placing more risk with the state-run insurer that already covers nearly 1 million policies. (Its peak was 1.4 million, in 2011.)

Demotech, in large part, blamed the Legislature’s inaction for the changes.

“In Florida, the unwillingness or inability of the Legislature to address longstanding disparate, disproportionate levels of litigation, and increasing claims frequency has resulted in a level of dysfunction that renders our previous accommodation inapplicable,” several of the letters state.

DeSantis’ office coordinated a swift and public attack on Demotech.

In letters to federal housing authorities on July 21, Chief Financial Officer Jimmy Patronis called Demotech a “rogue ratings agency.” Florida Insurance Commissioner David Altmaier wrote that it was an example of “inconsistent, monopolistic power of a select rating agency and is trying to exert coercive influence over Floridians and policymakers in an effort to thwart public policy according to its own opinions.”

Even U.S. Sen. Marco Rubio waded into the fray, asking the Federal Housing Finance Agency to reexamine its dependence on Demotech.

Petrelli said he had no warning and no conversations with state officials before the letters were sent to federal officials and the news media. He said the correspondence with the companies was the normal course of business, part of regular, ongoing conversations with companies about their financial status that they’ve been doing every quarter since 1996.

The level of rancor was “unprecedented,” Petrelli said, but it did not change how it rates companies. In recent weeks ratings were downgraded for four companies and ratings were withdrawn from four more, including Weston.

“It did not deter us,” Petrelli said.

Mark Friedlander, communications director for the industry-backed Insurance Information Institute, said the response was unlike anything he’d ever seen. Ratings agencies are supposed to be neutral third parties that rate companies without influence, he said.

“It was definitely, in our opinion, stepping over the line,” Friedlander said of the state’s response.

On the other hand, Petrelli “has pushed himself further into the limelight by publicly engaging in political theater,” the Florida Association of Insurance Agents said in a memo distributed by the Office of Insurance Regulation.

The association’s memo wondered whether the state’s insurers should move on from Demotech. It also raised longtime criticisms that Demotech often downgrades a company just days before it goes insolvent.

“That often begs the question, ‘Does a Demotech rating mean anything or provide the intended peace of mind to agents, consumers, and lenders?’ ” the memo stated.

Petrelli said companies keep their “A” rating as long as possible precisely because the “S” rating is not accepted by Fannie and Freddie, despite Demotech’s numerous attempts to get them to accept it.

When a company gets an “S,” he said, “unfortunately, they drop off the edge of the cliff.”

A ‘VERY ELEGANT’ SOLUTION

Notably, the Office of Insurance Regulation’s letter did not dispute that Florida insurers were failing. The office has its own watch list of 27 companies under “enhanced monitoring.”

Patronis’ letter also suggested insurance companies needed to find a new rating agency, but Friedlander said that likely wouldn’t help. The New Jersey firm AM Best has stricter requirements than Demotech, he noted.

Six days later, the state announced a solution should the companies’ ratings be downgraded.

Florida’s plan is to let insurance companies that are financially stable but just missing that “A” rating from Demotech, to keep operating and covering people’s policies.

If they go under, homeowners’ claims would be covered by the long-running state program known as the Florida Insurance Guaranty Association, which covers the first chunk of claims for any failed insurance companies. Citizens would foot the bill for anything over the limit of $500,000 for homes and $300,000 for condo units.

Handerhan called it a “very creative, very elegant, very consumer-centric” solution.

But will it satisfy the federal mortgage holders?

Despite repeated emails and calls over the last week from the Herald/Times, representatives from Fannie Mae and Freddie Mac didn’t offer an answer. The Florida Housing Finance Agency didn’t respond to Rubio, either, according to his office.

An Office of Insurance Regulation spokesperson said they’re “confident” the solution will be acceptable.

Earlier today, the Florida Office of Insurance Regulation (OIR) announced its plan to establish a temporary reinsurance arrangement through Citizens Property Insurance Corporation (Citizens). This innovative reinsurance program would be available to insurers facing a rating downgrade from Demotech, and it would allow such insurers to meet an exception offered by Fannie Mae and Freddie Mac, thus avoiding a situation where lenders would require policyholders insured by these downgraded insurers to find replacement coverage.

This unprecedented action by the OIR allows Florida's insurance consumers to maintain their insurance coverage, and it should put agents' minds at ease, knowing that they will not be required to move policies during the current hurricane season. FAIA would like to sincerely thank Governor Ron DeSantis, Chief Financial Officer Jimmy Patronis, and Insurance Commissioner David Altmaier for their swift response and leadership on this issue.

For more detailed information on the temporary reinsurance program, please read the OIR news release below:

Florida Establishes Temporary Reinsurance Arrangement for Insurers Facing Potential Financial Stability Rating Downgrades

Jul 27, 2022

Tallahassee, Fla. - Today, the Florida Office of Insurance Regulation (OIR) announced a plan to establish a temporary reinsurance arrangement through Citizens Property Insurance Corporation (Citizens) in the event of disruptive financial rating downgrades from Demotech, Inc. This unprecedented solution would allow insurers to meet an exception offered by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) and ensures Floridians can maintain coverage during hurricane season.

“OIR’s greatest priority is ensuring consumers have access to insurance, especially during hurricane season; and because of the uncertainty with the status of Demotech's ratings, we’ve been forced to take extraordinary steps to protect millions of consumers,” said Insurance Commissioner David Altmaier. “This innovative arrangement satisfies requirements set by the secondary mortgage market. In the event we need to implement this temporary solution, consumers will not need to seek coverage elsewhere, agents will not need to move policies, and lenders can have confidence that these insurers continue to meet the mortgage qualifications.”

Fannie Mae and Freddie Mac require that property insurance policies for properties with a mortgage backed by Fannie Mae or Freddie Mac must be written by an insurer meeting financial rating requirements.

Fannie Mae and Freddie Mac each offer an exception to the financial rating requirements for an insurer that is covered by a reinsurer who assumes, by endorsement, 100 percent of the insurer’s liability for any covered loss payable, but unpaid by the insurer, by reason of insolvency. In the event that a participating insurer is declared insolvent, the Florida Insurance Guaranty Association shall carry out its statutory duties under Part II of Chapter 631, Florida Statutes, and pay claims as set forth in the statute.

As a result, OIR, in conjunction with Citizens, has formed a program that meets the exceptions to the Fannie Mae or Freddie Mac guidelines. Therefore, there should be no reason for lenders to require a replacement policy, or force place coverage based solely on the ratings downgrades. This temporary arrangement would allow insurers to remain viable, to continue providing coverage for Floridians and helps keep policies out of Citizens.

Last week, OIR requested that Demotech provide additional information regarding their rating methodology to justify these downgrades. OIR received a response from Demotech, however, the response did not provide a timeline for ratings. The sudden loss of an acceptable Financial Strength Rating would have a significant and adverse impact on Florida’s insurance consumers, insurers, agents and property insurance market. OIR is remaining committed to protecting Floridians and the property insurance market under this plan.

By order of the Office of Insurance Regulation (OIR), with support from the Governor’s Office and the Chief Financial Officer's office, Citizens is ready to assist carriers in the event of a rating downgrade by Demotech. Carriers that are in compliance with all provisions of the Florida Insurance Code may enter into an arrangement by endorsement with Citizens.

This arrangement prevents the need for policies to be rewritten with Citizens. This is applicable when the mortgage on the insured dwelling is owned by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac).

Under the arrangement, if a carrier becomes insolvent, Citizens will pay the balance of all unpaid covered property insurance claims above the FIGA limit.

Each Endorsement with a carrier will expire no later than June 1, 2023.

No action is required on the part of agents or the policyholders.

 

Florida’s insurance commissioner announced today that his office has found an “unprecedented solution” to the looming property insurer rating crisis – let Citizens Property Insurance Corp. provide a level of reinsurance to companies in case they are downgraded, at least temporarily.

Insurance industry advocates called it “innovative” and an “elegant solution.” And Citizens officials have agreed to the arrangement.

“We’ve been working closely with stakeholders, from OIR, the governor’s office, and the CFO over the past several days and are on board with OIR’s plan,” said Citizens’ communications director, Michael Peltier.

The Florida statute governing Citizens authorizes the state-created insurer to enter into quota-share agreements with other insurers for hurricane coverage and other eligible risks. Having that in place will now let carriers take advantage of an exception in otherwise strict federal home lending rules, the OIR said in a statement.

The Florida insurance market was thrown into an uproar last week when rating agency Demotech sent letters to 17 Florida property insurers, warning that they will soon face financial strength downgrades. Demotech has since said it will hold off on the ratings until further notice.

The downgrades are problematic for Fannie Mae and Freddie Mac, the quasi-governmental secondary mortgage-lending corporations. Without strong ratings, the lenders won’t back mortgages, which could have forced thousands of Florida homeowners to seek new coverage or be moved into expensive force-placed policies, state regulators have said. But Fannie and Freddie both offer loopholes to the rating requirements if the insurer is covered 100% by a reinsurance endorsement for any loss payable, the OIR said.

“OIR, in conjunction with Citizens, has formed a program that meets the exceptions to the Fannie Mae or Freddie Mac guidelines,” the OIR statement reads. “Therefore, there should be no reason for lenders to require a replacement policy, or force-place coverage based solely on the ratings downgrades.”

The Florida Insurance Guaranty Association would remain responsible for paying claims for any insolvent carriers going forward, up to its statutory limit. But the OIR plan appears to let Citizens cover liabilities above the FIGA limit.

“This innovative arrangement satisfies requirements set by the secondary mortgage market,” OIR said. “In the event we need to implement this temporary solution, consumers will not need to seek coverage elsewhere, agents will not need to move policies, and lenders can have confidence that these insurers continue to meet the mortgage qualifications.”

The announcement quickly raised questions around the industry, including concerns about how long would the arrangement will remain in place; and if it proves workable, would that mean financial ratings are no longer needed? If the mortgage requirement is the chief reason for financial stability ratings, perhaps regulators have found a new way to meet the unique needs of the Florida market.

The ultimate impact on Citizens was not made clear Wednesday. Commissioner David Altmaier’s office said in the release that the arrangement will help keep Citizens from assuming more homeowner policies. The 20-year-old corporation, established to be an insurer of last resort, is growing by more than 30,000 policies a month and is on track to be the largest property insurer in the state with at least 1.2 million policies in force by year’s end.

But taking on ceded policies from some struggling private insurers could ultimately affect Citizens’ exposure.

Despite that, the plan is a good one, said Paul Handerhan, president of the Florida-based Federal Association for Insurance Reform. He noted that it is similar to a “cut-through endorsement” that essentially guarantees an insurer’s obligations.

Ratings downgrades likely would not have cost Fannie Mae significantly, but the new arrangement should give the lenders confidence that loans are fully protected, Handerhan said.

Demotech and Florida regulators have not named the 17 carriers facing potential downgrades. Several reported to be on the list have declined to comment.

A number of companies rated by Demotech have made major changes this year to try and manage the turbulent Florida waters. This week, Southern Oak Insurance notified agents that it had instituted a $250,000 coverage limit, and will only write structures built in 2022. The carrier, which covers about 1% of the Florida market and holds $134 million in direct written premium, also said it would no longer write policies in 10 counties.

The changes are set to take effect July 30. New quotes meeting the current guidelines must be bound by 6 p.m. on Friday, July 29.

“Thanks to a flourish of positive growth so far this year, we are outpacing our projected reinsurance growth and feel that temporarily limiting our capacity will maintain the level of financial responsibility and exposure management that our policyholders and agency partners know and trust,” Southern Oak’s bulletin reads.

Some pricing in Florida was near “distress” levels for reinsurance buyers, Gallagher Re said in a report. (Editor’s note: The report is titled: Gallagher Re 1^st View: Changing Environment 1 July 2022).

“The changing economic environment is starting to impact reinsurers’ balance sheets,” said James Kent, global chief executive of Gallagher Re.

“Reinsurers now appear to be more sensitive to losses and wider external events than at any time since 2008.”

TALLAHASSEE, Fla. (AP) — The Florida House of Representatives on Wednesday gave final passage to sweeping property insurance legislation that creates a $2 billion reinsurance fund and rewrites rules on coverage denials and attorney fees, as lawmakers attempt to stabilize rising rates and insurer losses.

The legislative package now awaits the signature of Gov. Ron DeSantis, a Republican.

The bipartisan vote in the House capped a special legislative session in which lawmakers approved the broad insurance proposals in three days with little expert analysis in public. Still, many lawmakers said that the measures represented a meaningful way to begin to solve problems in the market, with more work to be done in the future.

“I don't think, unfortunately, that our constituents are going to see the results that they want to see right away, but I do think this is an important first step for us to take, but it can't be the last step,” said Rep. Fentrice Driskell, a Democrat.

Democrats, the minority party in the statehouse, often pushed to insert measures to ensure rate decreases or freezes but were thwarted by Republicans who argued the wide-ranging legislation could yield decreases in the next 12 to 18 months.

The insurance industry has had two years of underwriting losses exceeding $1 billion each year and several insurance companies have either gone insolvent, required midterm cancellations, are in liquidation or have stopped writing new business since 2021, the governor said in his proclamation calling lawmakers back to the Capitol. The loss of private insurers has driven property owners to Citizens Property Insurance, a state-run public insurer meant to be a last resort.

The proposals passed Wednesday would create the $2 billion Reinsurance to Assist Policyholders program for insurers to purchase insurance to help insulate themselves from risk. In order for an insurer to access the fund, it would have to reduce policyholder’s rates.

The bills would forbid insurers from automatically denying coverage because of a roof’s age if the roof is less than 15 years old. Homeowners with roofs 15 years or older would be allowed to get an inspection before insurers deny them coverage. If an inspection shows that a roof has at least five years of life remaining, insurers can’t refuse to issue a policy only based on the roof’s age, under the proposed legislation.

If a roof is more than 25% damaged but already complies with the state’s 2007 building code, it would only have to be repaired instead of replaced under an exemption to the building code that the proposed legislation creates.

Another measure would provide grants worth up to $10,000 each to retrofit homes so they are less vulnerable to hurricane damage. To qualify, properties would have to have insured values of $500,000 or less, be homesteaded, constructed before 2008 and located in areas where wind speeds from storms can exceed 140 mph (225 kph). Homeowners would get $2 from the state for every $1 they invested in mitigation efforts.

The legislation also seeks to limit various attorney fees in insurance-related cases, which insurers blame for much of the rate increases for policyholders. Supporters of the legislative package have frequently noted that Florida accounted for 9% of all insurance claims filed nationally but nearly 80% of all the property insurance lawsuits.

The package also includes a measure to require that all condominiums higher than three stories statewide have periodic inspections of their structural integrity, a proposal that came in response to the Surfside condominium collapse that killed 98 people nearly a year ago.

The bills would allow for more state oversight so regulators can spot trends, analyze reasons and try to prevent the future failure of insurers.

Insurance customer Mimi Bright said the premium on her Parkland home jumped from about $4,500 a year to more than $7,500 after her previous insurance company went out of business. She had opened a claim for water damage in December and no other private insurance company would sell her a policy when she had an open claim.

Bright said the state-run Citizens Property Insurance initially refused to give her a policy but eventually relented, leaving her with a more than 60% premium increase from her old policy.

“Right now, that is my only option because it is the only company in the state of Florida that will write with an open claim with an exception,” Bright said.

Hurricane season is here—check out the following tips to keep you and your family, as well as your car, boat or RV safe in case severe weather strikes.

Tips to make sure your car is hurricane-ready

With most of your focus on your family and home, you may not think much about your car during a hurricane. But, it may just be your key to safety if you need to evacuate.

Make sure your car is ready and that you understand how to drive in severe conditions.

Well in advance:

• Prepare an evacuation route.
• Store emergency supplies in your trunk. The basics include a first aid kit, bottled water, non-perishable foods, and prescription medications. Here are a few additional suggestions.

If a storm is forecast:

• Get a full tank of gas. Fuel may be in short supply after the storm.
• Make sure the windshield wipers are in good shape, and the tires (including your spare) are properly inflated.
• Place your auto and home insurance documents, vehicle registration, title, and other important documents in a waterproof bag and keep them with you.
• Charge your cell phone and plan to bring it if you evacuate.
• If you expect to leave your car behind, be sure it’s not in a flood-prone area. Rising water can seep in and damage your vehicle.
• If you’re instructed to evacuate, do so immediately.

If you’re ordered to evacuate or are returning home after an evacuation:

• Avoid driving through deep water. The average car can be swept off the road by as little as 12″ of moving water. Just try to find an alternate route.
• If your vehicle stalls in water, you may need to restart the engine to make it to safety. But, be aware that restarting may severely damage your engine.
• If you can’t restart your car and you become trapped in rising water, immediately abandon it for higher ground. If you’re unable to get out safely, call 911 or get help from a passerby or someone standing on higher ground.
• After you and your vehicle are out of deep water and in a safe area, depress your brakes slowly several times to help them dry.

Tips to make sure your boat is hurricane-ready

Know how to protect your boat if a hurricane or other severe weather event is approaching. We developed these tips with help from the U.S. Coast Guard and Federal Emergency Management Administration. Ultimately, the best way to protect your vessel is to remove it from the water, and all other measures are supplemental in the event this can’t be done.

Whether your boat is docked, anchored, or in dry storage:

• Have a storm strategy and implement it well before the hurricane hits.
• Remove non-secure items, electronics and excess gear.
• Remove important documents and valuables.
• Make sure openings are watertight, and remove or stow non-essential canvas.
• Ensure that all self-bailing thru hull fittings are clear of debris.
• Check that batteries are fully charged and that automatic bilge pump switches are operational.

If your boat is docked:

• Double-up on chafe protection.
• Double all lines, attaching them high on pilings to allow for a storm surge. The longer the dock lines, the better a boat will move with high and rough tides.

If your boat is anchored:

• Do not tie it parallel to the shore.
• Leave plenty of room between your boat and other boats.
• Be sure to use enough line to allow for a storm surge.
• Clear all self-baling cockpit drains.
• Consider using several anchors.

If your boat is in dry storage:

• Place it in an area higher than the expected storm surge.
• Lash it to its cradle with heavy lines and consider adding water to the bilge to help hold it down. Never leave your boat on davits or on a hydro-lift.
• If your boat is on a trailer, take some air out of the tires and secure the wheels with blocks between the frame and the axles.
• Make sure all drains are free from debris and drain plugs are removed.

With any of these scenarios, if you’re out of town, ask a friend or relative with access to your boat to help. Sure, you’ll “owe him,” but that favor could help prevent some very expensive damage.

Of course, the most important thing to remember is to protect yourself. Never put yourself in danger while trying to protect your boat.

Tips to make sure your RV is hurricane-ready

Your RV can help you and your family evacuate an area, and serve as a cost-effective, temporary living space if your home isn’t livable due to storm damage.

Here are a few tips to make sure your RV is hurricane-ready.

Well in advance:

• Prepare an evacuation route.
• Store emergency supplies in your RV. The basics include a first aid kit, bottled water, non-perishable foods, and prescription medications. Here are a few additional suggestions.
• Perform a thorough safety check. If you use gas-powered lanterns or cook stoves, be sure to have battery-operated fire alarms and carbon monoxide detectors. If you use an electric generator, install a transfer switch to prevent shocks.

If a storm is in the forecast:

• Get a full tank of gas. Fuel may be in short supply after the storm.
• Make sure the windshield wipers are in good shape, and the tires (including the spare) are properly inflated.
• Pack sleeping bags and bedding in plastic to protect them from moisture.
• Place your auto and home insurance documents, vehicle registration, title, and other important documents in a waterproof bag and keep them with you.
• Charge your cell phone and plan to bring it if you evacuate.
• Empty the holding tanks, turn off the propane cylinders, and cover the regulator.
• If you have a travel trailer, tie it down and make sure it’s secure.
• If you expect to leave your RV behind, make sure it’s not in a flood-prone area. Rising water can seep in and damage upholstery, carpeting and electrical systems.
• If you’re instructed to evacuate, do so immediately.

Driving:

• Don’t drive during a hurricane. RVs are particularly vulnerable to heavy winds and rain because of their size and high center of gravity.
• If you have no alternative than to drive through standing water, do it slowly and steadily. If your RV stalls, you may need to restart the engine to make it to safety. But, be aware that restarting may severely damage your engine.
• If you can’t restart your RV and become trapped in rising water immediately abandon the vehicle for higher ground. If you’re unable to get out safely, call 911 or get help from a passerby or someone standing on higher ground.

Heritage Property & Casualty Insurance Co. reported more losses for the first quarter of 2022 and a spike in its combined ratio. But company officials said Friday they are taking aggressive steps, including rate increases, policy changes and tightened underwriting requirements, to improve the Florida-domiciled company’s financial profile.

The Friday earnings call for the publicly traded Heritage came the same day that the carrier filed notice with the Florida Office of Insurance Regulation that it would cut the eligibility age of metal, slate and tile roofs from 25 to 15 years for new homeowner policies, beginning June 1. A number of Florida insurers, including Heritage, have aleady reduced the age of covered shingle roofs to 10 years, but this may be one of the first filings to tighten requirements on metal and tile, which are generally expected to last for decades.

The conference call also came two weeks after Tampa-based Heritage filed for an endorsement requiring binding arbitration for claims disputes, beginning July 1 for new and renewing homeowners policies.

“Given the turbulent state of the market, rampant with fraud and abuse, we are proposing changes that will control exploitation,” reads a memo accompanying the April 26 filing with OIR.

The filing came two months after OIR surprised many in the industry when it approved an endorsement from American Heritage Insurance Co., offering arbitration in exchange for a premium discount for policyholders. But Heritage, facing weather losses and spiraling litigation expenses, appears to be taking it a step further, with no mention of a trade-off.

“If you and we fail to agree on whether there is coverage for the loss, either party may, in writing, demand arbitration,” the Heritage endorsement reads. “An arbitration award shall be binding upon the parties as the issue of coverage and all damages and benefits due and owing under the policy.”

Both parties must pay for their respective arbitrators and experts. If the chosen arbitrators cannot reach agreement, the matter will go to a chief arbitrator, paid for by Heritage, the endorsement notes. The insured and the insurer will pay their own attorney fees and policyholders will not be able to recover the legal costs from the insurer, as is currently allowed by statute for some claimants who prevail in litigation.

Heritage homeowner policies, like most insurers’ policies, already call for non-binding mediation and an appraisal panel to help settle disputes before litigation. But the arbitration clause is new, according to the OIR filing. The regulatory agency has not indicated if or when the endorsement will be approved.

Insurance groups have embraced the idea of more arbitration as a way to avoid costly litigation, and more carriers are expected to file similar endorsements in coming months. The special session of the Florida Legislature, which meets May 23-27, also is slated to consider ways to expand the use of arbitration.

Policyholder attorneys and consumer advocates have expressed concern, arguing that arbitration does not follow the rules of court and can take away homeowners’ right of appeal and due process.

The Heritage earnings call did not mention the new arbitration endorsement. But company officials did name other steps the company is taking to stem losses.

“We will continue to seek rate changes commensurate with our cost of doing business,” Heritage CEO Ernie Garateix said. “We are committed to proactively and appropriately raising rates to offset higher loss costs and taking actions to improve our profitability throughout the year.”

“We will consider all options,” Chief Financial Officer Kirk Lusk said.

The company’s first quarter 2022 financial results show a $31 million loss, a big increase over this time last year, but less red ink than the $49 million loss in the fourth quarter of 2021. The combined ratio also shot up, to 129.5% for Q1 2022. That’s significantly worse than the 107.7% reported in Q1 2021 and the profitable 93.2% reported for the last quarter of last year.

Financial analysts on the call wondered about Heritage’s unusually large amount of catastrophe losses this year. The company reported net accident year weather losses of $64 million – double the prior year’s Q1 results. The weather losses included $45 million in catastrophe losses, despite no hurricanes so far this spring.

Lusk said the losses were due to six significant weather events, most of them in Florida, in January. Heritage also writes in six Southeastern states as well as other states.

Heritage’s Q1 2022 financial report also shows that it has continued to pull back from the trouble-plagued Florida market, shedding almost 18% of its policies in the state and about 15% of its totaled insured value there.

Across its book of business in all states, Heritage also has seen an average premium increase of 21%, company leaders said.

The financial results, posted a few days before the earnings call, did not soothe Wall Street. Two investment research firms, Zachs Investment Research and StockNews.com, last week downgraded the Heritage stock from a “buy” rating to a “hold.” The stock price closed Friday at $3.72 per share, down sharply from a week before, when the preliminary financial results were posted.

Since the end of March, the stock price has lost half its value, according to Yahoo!Finance and other stock trackers.

Heritage continues to enjoy an “A, exceptional” financial stability rating from the Demotech rating firm.

Who would have thought, given what many have called a crisis in the Florida property insurance market, that an insurance company would decide it could improve its bottom line by focusing solely on the storm-plagued Sunshine State?

FedNat Insurance, formerly known as Federated National, is planning to do just that, according to a third quarter financial report from the Florida-based carrier’s holding company. The publicly traded firm (Nasdaq: FNHC) said it is pulling out of all other states after being battered by major storm losses in Texas and Louisiana in the last two years.

“I wouldn’t say it’s a smart move; more of a necessary move,” said Paul Newsome, an insurance industry analyst with Piper Sandler investment bank.

FedNat, founded in Florida in 1992, has been ranked as the fourth-largest homeowners’ carrier in the state in recent years. It expanded into other Southern states, including Texas, Louisiana, Mississippi, Alabama and South Carolina, in 2013. The company accelerated that expansion in 2019 – just in time for a devastating winter storm in Texas early this year and Hurricane Ida, which struck Louisiana this year and left as much as $30 billion in industry claims in its wake.

“The impact of these significant catastrophe weather events has put a strain on FedNat’s capital position and further action is now appropriate. We are therefore exiting the non-Florida markets and refocusing on the improving Florida homeowners’ market…” FedNat CEO Michael Braun said in a report to investors, posted Monday.

Despite recent signals from some Florida-based insurers that they are facing continued losses and “a sea of red ink” from storms, roofing claims and litigation, the Florida market may have improved somewhat for FedNat in the last two years. State lawmakers approved measures designed to reduce assignment of benefits agreements and litigation, and regulators have allowed several significant rate increases for struggling carriers. FedNat has been allowed rate increases amounting to 70% over the last four years.

FedNat also has pared back its Florida book of business by a third, from 272,000 policies in force in 2017 to 168,000 at the end of the third quarter this year. But premiums remained stable at $430 million, due to the rate increases, the company explained.

“As a result, we believe now is the right time to focus on writing policies in Florida, where FedNat continues to have significant market share, strong underwriting and claims handling capabilities, and strong agent relationships,” Braun said in the statement.

The move does not necessarily mean Florida’s market is stabilizing or that FedNat is out of the woods.

“It’s definitely been a challenging quarter for FedNat,” Newsome said.

Braun could not be reached for comment Tuesday. But the financial release said FedNat Insurance Co. was propped up with a $20 million infusion capital from its holding company in September. The company also experienced a net loss of almost $25 million for the third quarter, compared to a loss of $21 million in Q3 2020.

Total revenue decreased by 31% in the third quarter this year and the combined ratio stood at 165.4, well above the U.S. property and casualty industry average of 97.5 for 2020, according to Statista research.

Losses and loss adjustment expenses actually decreased by $39 million – almost 40% – for the third quarter of this year, FedNat reported. The quarter included about $20 million in catastrophe losses from Hurricane Ida. But the numbers were an improvement over this time last year, when the carrier saw $38 million in catastrophe losses due to Hurricane Laura, which struck part of Louisiana, and from Hurricane Sally, which hit the Florida Panhandle.

FedNat may have run into other issues with its Louisiana claims. The company was listed as having 157 complaints from homeowner policyholders in early 2021, the second-highest number, behind the much-larger State Farm Insurance, according to the Louisiana Department of Insurance. In Florida, FedNat ranked fifth, with 339 complaints or about half as many complaints as the state-backed Citizens Property Insurance Corp., the Florida Office of Insurance Regulation reported.

One industry source wasn’t convinced that FedNat’s retreat to Florida will help it in the long run, particularly if Florida is hit by more intense hurricanes in coming years, as expected.

“If thinly capitalized (firms) cannot survive in Texas and Louisiana, it’s hard to see how better pricing in Florida would make a business more sustainable if that state also experienced a few more multi-billion industry loss storms,” wrote Artemis, a reinsurance and insurance securities analysis firm.

FedNat may be able to expand its Florida book as Citizens moves to depopulate, Artemis suggested. Citizens is the largest carrier in Florida and is expected to reach more than 1 million policies by the end of next year. The company has taken several steps to move homeowners to other carriers, including the launch of an aggressive property inspection program over the next four years.

A FedNat spokesman said Tuesday that the carrier would only accept Citizens customers who will pay FedNat’s rates and meet its underwriting standards.

Other industry experts said that while the Florida property insurance market may be more troubled than other states’ markets, many coastal areas are producing big losses for insurers. Florida’s insurance regulator, who is appointed, may have allowed the recent rate hikes while elected insurance commissioners in other states have not.

“They’re cutting their losses and refocusing on their core business in Florida,” Michael Carlson, president of the Personal Insurance Federation of Florida, said about FedNat. “But it’s unfortunate to hear of their financial situation. We need a healthy market here. We need a whole mix of companies writing in the state.”

Despite the problems in the Florida market, FedNat appears to be positioned to survive in the state, said Paul Handerhan, president of FAIR, Federal Association for Insurance Reform, which is based in Florida. He noted that FedNat has sufficient surplus and reinsurance needed to achieve a favorable rating from Demotech, the financial rating service, and to withstand at least two significant storm events in the same year.

To unwind its operations in other states, FedNat said it will “commence an orderly runoff” of its subsidiary, Maison Insurance Co., and will soon file a withdrawal plan with state regulators. Nonrenewals of Maison policies will begin in January in Louisiana, in February in Texas, and in June in Florida.

Demotech recently informed FedNat that it has withdrawn its rating for Maison.

FedNat’s non-Florida book of business has been written through SageSure, a managing general underwriter. By next month, SageSure will work with policyholders to move policies to other carriers, FedNat’s report said. The runoff and transfer should take about 18 months.

“We expect the benefits of this transition to begin to materialize immediately in the form of lower capital requirements and lower exposure to catastrophe weather losses,” Braun said.