Q&A – Are Florida’s Property Insurer’s Really ‘Low Quality’ Companies?

Episode Transcript

(00:01):
I'm going to question modest answers toquestions you won't here anywhere else. The
Q and A of the day reactionfrom our government to Brian must show I
don't get that. Yeah, Soas we dive in on my Q and
A today, big old narrative buster, here are Florida's property insurers really low

(00:23):
quality companies. This has brought toyou by Melissa and Ashes. Check Mark
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(00:45):
us. Once you get there,look for the little microphone button. See
it, tap it, Leave themessage right there, Maybe top your question
for a future q NA. Thenhit that big play button. Always stream
us live everywhere you go. GreatHD quality experience. Today's note is this,
Brian, what do you make ofthis? And the link? This
was a link to a story headlineFlorida insurance market full of low quality companies

(01:08):
study fines. Okay, well,what I make of it is that there's
some truth to the characterization of someof Florida's property insurers being of lower quality,
and that you have a disingenuous newsmedia that's engaged in unproductive sensationalism with
the topic that's a hot button.The story sided in Today's Q and A

(01:30):
was first published by Lawrence Mauer ofthe Tampa Bay Times on Friday, and
subsequently picked up by newsallets throughout thestate by Monday. Lawrence is a veteran
investigative reporter who started with the PalmBeach Post just over a decade ago,
has progressed over the decade since hisstory starts out like this, The vast

(01:52):
majority of small insurers operating in Floridaare considered so financially weak that they wouldn't
typically meet federal guidelines allowing them toback mortgaged homes. Okay, So for
Floridians already stressed about by having hada series of property insurance challenges, including
many first being forced onto Florida's insurerof last resort citizens, then perhaps being

(02:15):
forced off of it with a higherprice plan, et cetera, and then
massive cost increases in recent years,that's that kind of stuff is bound to
get people's attention, right, andit has. It also comes amid a
recovery attempt by Florida's property insurance industryfollowing a series of legislative reforms between regular

(02:35):
and special sessions in twenty twenty twoand twenty twenty three. The story cites
a non period viewed study conducted byresearchers at Harvard Columbia and the Federal Reserve
Board that cast a seemingly dark shadowover Florida's property insurers and the study entitled
When Insurers Exit Climate Losses Fragile Insurersin Mortgage Markets. The apps to the

(03:00):
study includes this says, this paperstudies how homeowners insurance markets respond to growing
climate losses and how this impacts mortgagemarket dynamics. Using Florida as a case
study, we show that traditional insurersare exiting high risk areas and new,
lower quality insurers are entering and fillingthe gap. These new insurers service the

(03:23):
riskiest areas, are less diversified,hold less capital, and twenty percent of
them become insolvent. We trace theirgrowth to a lacks insurance regulatory environment.
Yet despite their low quality, theseinsurers find high financial stability ratings not from
traditional rating agencies but from emerging ratingagencies. Importantly, these ratings are high

(03:46):
enough to meet the minimum rating requirementsset by government sponsored enterprises. We find
that these new insurers would not meetGSE eligibility thresholds if subjected to traditional rating
agencies methodologies. Okay, there isa lot employ here, a lot emplay
here. At the root of itis this, with many of the largest

(04:08):
property insurers having pulled back or pulledout of Florida in recent years, the
companies left and the newer companies thathave emerged or re entered for his property
insurance market, they are not bydefinition as financially stable as larger companies.
This is an inherent fact. Thisis not complicated. The larger and more

(04:29):
diversified an insurance company is the betterposition. They are too successfully withstand mass
claim events. I wouldn't imagine thata Floridian who is underwritten by a property
insurance company they had never heard ofwould imagine that company is as substantiated as
the largest names named insurances that arepulled back within the state. Does anybody

(04:51):
have any misconceptions about that? Withoutany knowing anything else that is not the
question here this is where so howmuch of this is really out in left
field? The question is whether theproperty insurance company you're with can pay out
your claim if you have one.Isn't that what you actually care about?

(05:13):
Can they cover a loss? Canthey cover your claim if you have one?
So I'm going to come back tothat point in a moment. The
crux of the study subjectivity focuses onFlorida's main insurance rating agency, demo Tech.
Specifically, the study suggests that demoTech's ratings are not as rigorous as
the largest insurance rating industry in theworld, am Best. As is noted

(05:35):
in the study, an A ratingby demo Tech may only equate to A
B or A B plus using theam best standard. The study and for
that matter, The Times. Hisstory also goes on to highlight that about
nineteen percent that's the actual number inthe study, not the twenty percent that's

(05:59):
spending about eineteen percent of A ratedDemo Tech companies went insolvent between twenty nine
and twenty twenty two. Now Iwant you to think about this. How
interesting this is. Why did theypick a period of time between twenty nine
and twenty twenty two. Is thatnot the extreme of extremes if you're going
to try to find a window.What the story failed to mention is that

(06:25):
the selected window of time featured themost botal operating environment for property insurers and
American history, let alone in Florida. Think about this. Within that select
window, the US economy faced theFinancial Crisis and Great Recession. Six of
these seven most expensive hurricanes for theproperty insurance industry in inflation adjusted dollars in

(06:49):
American history, the pandemic induced recessionof twenty twenty and the pandemic bubble burst
recession of twenty twenty two. Frankly, that only nineteen percent of Florida's A
rated property insurance companies were forced tofold after facing that thirteen year deluge of

(07:11):
negative events is surprising. It isimpressive. Context is also key, and
that takes me to this one.Demo Tech is called an emerging and rating
agency by the study. However,you know only they've been operating since nineteen
eighty five. Will you call acompany that's been operating in good standing for

(07:33):
thirty nine years an emerging rating agency? Two? The reason that Demo Tech
rates most of Florida's property insurance companiesis because guess what, firms like am
best don't do it. They onlyrate the largest insurance You literally had this

(07:54):
study. Compare demo tech to ratingagencies that literally will not do what they
do not mentioned in the study orany of the just BS news reporting that's
out there about this. Three.A previous Florida State University College of Business
study that was peer reviewed by theway of demo tech compared to the larger

(08:18):
rating agencies concluded this I'm quoting fromFSU study. Demo tech provides an important
service within the ratings community by ratingthe smaller ensures that the am Bests of
the world do not and that theirstandards show quote unquote relative consistency with the

(08:39):
largest agencies like a invest in Moodies. But evidently that kind of stuff just
was not important enough to include inthe story bandied across the state. And
there's also an even bigger issue inplay. I often talk about the premise,
specifically, if the premise of anythingis falls, anything built up that

(09:00):
false premises too. While aside fromonly one side of the story being told
in the news article, there's theeven bigger question why now the study was
written on December twenty third of lastyear and published on January thirteenth. Why
wait three full months passed publication beforewriting a story full of potentially dire warnings.

(09:22):
Why wouldn't this be brought to theforefront in advance of the state legislative
session so that proper legislation consideration.Legislative consideration could have been paid to the
considerations employ Either the investigative journalists responsiblefor the story stumbled onto the study three
months after the facts, which speaksfor itself, or it was specifically timed,

(09:46):
perhaps coincidentally or not so coincidentally.During the same week that the insurance
industry trade publication, The Insurer publisheda report entitled Florida Insurance Market. On
the mend the story in ludes thisexcerpt, new capital is entering the market,
Citizens and shrinking, and Florida homeinsurance market has turned a modest profit

(10:07):
after seven years of red ink.Prior to the passage of tort reform,
Florida's insurance market was all doom andgloom. Fast forward to today, rates
are stabilizing, New companies with freshcapital are entering the market, Citizens is
shrinking, and insurers are improving.It also goes on to note that the
recent legislative changes in Florida are healinga fractured residential property insurance market, but

(10:31):
none of that was apparently relevant tothe Investigative Journal. Instead, data information
was Nor was this statement by CitizensProperty Insurance Insurance as CEO during the Board
of Governors meeting last week where hesaid, we think the market is going
to continue to recover. Capital isgoing to continue to flow into the Florida
market. The market is interested inour business. So the fact of the

(10:54):
matter is this, Florida's property insuranceis still distressed, but it's recovering.
Demo tech is what companies like amBest don't do. Your property insurance is
likely to at least be as capableof paying out claims as it has as
it has been anytime over the previousfifteen years. And in the worst case
scenario of an insolvency, guess whatthe Florida Insurance Guarantee Association steps into pay

(11:16):
claims up to three hundred thousand dollarsin value. Something else that also was
not mentioned at any point in thisarticle or any of the news reporting that
is taking place across the state.There are two sides of stories, one
side of facts, and a goddlesssolace and Slender's news media that forever is
not doing the right thing by you.