By Kevin McCarty

Special to the Sun Sentinel Sep 08, 2022

Kevin McCarty served as Florida’s insurance commissioner for 13 years. He also served as president of the National Association of Insurance Commissioners and Vice Chair of the International Association of Insurance Supervisors.

While hurricane season this year has fortunately been quiet for months, the reality is that Floridians are facing another concerning crisis. This one involves an exodus of home insurance companies that either are going bankrupt or choosing to pull out of the state, leaving tens of thousands of homeowners in the lurch.

Throughout my 13 years as Florida’s insurance commissioner, it was clear that given Florida’s vulnerability to catastrophic loss from tropical storms, every effort must be made to promote market stability. Despite policymakers’ best efforts, Florida’s property market is indeed in turmoil. Since February, five property insurers have been deemed insolvent and several other companies are choosing not to renew thousands of Florida policies in order to remain in business.

Recognizing this, Gov. DeSantis called a special session earlier this year to give the Legislature the opportunity to enact meaningful solutions. Lawmakers have the challenge of balancing competing interests, and seldom do competing parties agree on a path forward. While positive steps were taken during the special session, the reality is that it will take months before insurers and consumers are able to see the impact of the policy changes. Many thought leaders believe more reforms will be necessary to return to a robust market.

Unfortunately, a company that rates the financial strength of Florida insurers has now become a target of those who unfairly blame the ratings organization for contributing to the market turmoil.

The company being targeted, Demotech, has evaluated the financial strength of property insurers for decades. It does a thorough and professional job, using sound actuarial principles and a detailed methodology to determine financial stability ratings for hundreds of companies doing business in Florida.

These ratings are crucial, because only insurers that earn strong financial ratings may write policies for home loans backed by federal mortgage programs.

So how does this affect the average Floridian? If you are buying a house and cannot find a highly rated insurer, you can’t receive one of those federally backed loans. When insurance companies exit the state or close their doors, consumers are left with fewer options — and the remaining choices are often even more costly.

After the destruction brought by Hurricane Andrew in 1992, national insurers fled Florida in unprecedented numbers to avoid future catastrophic losses. Over the years, the state has wisely enacted reforms to revitalize the market and entice new companies and capital to Florida. Amid the challenge of such a unique and intricate insurance market, Demotech was the only independent ratings company approved by federal mortgage programs that was willing to provide ratings for newly formed companies.

Right now, that’s exactly what we need. The reality is that many Florida insurers are currently at risk of being downgraded. That would be true regardless of which rating company was evaluating their financial condition. Facts are stubborn. Demotech is merely the messenger, and focusing on their ratings rather than a broader industry that is in freefall could prove to be a costly mistake.

While some policymakers have raised questions about Demotech’s continued role in our state, they should proceed with great caution. Anything that might further disrupt the ratings process would not only be disastrous for our insurance market but could have a domino effect on banking, mortgages and other critical financial services.

Creating stability in Florida’s insurance market will require ongoing efforts to develop creative solutions to these complex challenges. Florida has done it before. We just need to focus on the task at hand, not shooting the messenger.

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