Florida homeowners with Citizens Property Insurance policies recently received notifications that they would be transferred as customers to one of several start up insurance carriers unless they exercised their right to opt out within a prescribed time period. These newly formed insurance companies are deemed “take out” companies. This term indicates the status of the insurers which have as their sole source of customers the takeover of property insurance policies from Citizens. This arrangement creates a mutually beneficial financial relationship for both Citizens, which is trying to depopulate its customer basis, and the take out insurers who are provided with a ready-made market of customers. Policyholders, who are the other party involved in these relationships, might end up with the short end of the stick.
While Florida has had a hurricane free period that is unprecedented in recent years, this pattern will not continue indefinitely. When a mass disaster occurs, it is imperative that you have an insurer with the financial resources to payout multiple claims resulting from a single mass disaster like a hurricane. A recent report reveals that these fledging insurers have no proven track record in surviving the financial losses associated with a hurricane.
Generally, these take out insurance companies also are rated poorly by the insurance industry. The average rating for these newly formed insurance companies is a lackluster “C-“ according to Weiss Rating. The cause for concern is increased by the fact that as many as a dozen of these take out insurers failed between 2006 and late November 2014. This high number of failures occurred during a time when no major catastrophic events stressed the insurance industry in Florida. Thus, there is a significant cause for concern about the feasibility of these small local insurance carriers handling hundreds or thousands of claims during a natural event that causes enormous financial losses.
Although shifting to a take-out insurers might save a few bucks in the interim, the long-term financial consequences might far outweigh a potential modest reduction in premiums. Nonetheless, these fledgling insurers are collecting $6 billion in premiums annually even though Florida has not had a large scale insurable event in more than a decade.
Policyholders might want to observe the maxim, “Be careful what you wish for because you just might get it.” Many Citizens customers have legitimate grumblings about the level of service provided by Citizens Property Insurance. However, customers of Citizens might want to think twice before moving from Florida’s insurance company of last resort, which is a known entity, to unproven take-out insurers. While it can take years to get paid by Citizens following a hurricane, this large quasi-public insurer does not have the failure risk of smaller take-out insurers.
If you have questions about insurance coverage in Florida or need help dealing with your homeowners insurance company, you might want to speak with an experienced attorney. An experienced Miami homeowners insurance claims attorney can help you counter denials. My law firm represents policyholders in claims disputes in Miami and throughout Florida. The Law Firm of J.P. Gonzalez-Sirgo, P.A. offers free consultations and case evaluations. No Recovery, No Lawyer Fees. Call 305-461-1095 or Toll Free 1-866-71-CLAIM.