Attacking ratings model doesn’t help insurance crisis | Editorial [Orlando Sentinel] - Insurance News

Florida already has a property insurance crisis. Why would Tallahassee want to make it even 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 based on their ability to pay claims after hurricanes. Fannie Mae and Freddie Mac, the huge government-backed mortgage lenders, recognize only insurers with the highest possible rating.

Two months ago came reports that Demotech was prepared to downgrade at least 17 of the 40 state-based carriers it rates. As national insurers have scaled back dramatically in the state, Florida has relied on newer, state-based firms, which have fewer resources than national carriers.

The news broke in the middle of two seasons — hurricane and election. Downgrades could have forced tens of thousands of Floridians to scramble for coverage or wait months for repairs if a big storm hit.

Worse, Demotech seemed to be challenging the argument that the Legislature’s recent reforms could ease the crisis. Those reforms generally got bipartisan support, but Democrats — notably the party’s candidate for governor, Charlie Crist — are criticizing the high cost of housing, including property insurance.

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

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

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

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 one big step further. A legislative committee allocated $1.5 million “to explore alternative methods and develop options for admitted property insurance companies to acquire a financial rating satisfactory to federal mortgage standards.”

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

We have seen this movie before.

After Gov. DeSantis sought to control what professors at state universities teach and to eliminate tenure, the accrediting agency for colleges criticized the moves. DeSantis and the Legislature then required state universities to change accreditors, which could jeopardize federal student loans.

After President Biden tried to mandate COVID-19 vaccinations in workplaces, DeSantis and the Legislature took steps to create a state version of the U.S. Occupational Safety and Health Administration. Workers in Florida might wind up with fewer protections.

After Friday’s hearing, Demotech issued a statement noting its 36 years of work in Florida. The company called the move to find a replacement “an unnecessary response to a problem that does not exist.”

Indeed, this “problem” is political.

Patronis argues that Demotech isn’t assessing just the solvency of the companies. He claims that Demotech is overreaching by 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 had to consider those reforms. The state’s “litigation environment,” the letter said, “must be dramatically and rapidly improved” to keep insurers solvent.

Demotech thus 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 “woke” — Republicans’ favorite all-purpose demonization — policies by insurance companies. His loose talk alarmed insurance industry officials, who worried that Patronis now opposed discounts for storm hardening. In an email exchange with the Sun Sentinel Editorial Board, an aide said Patronis supports those discounts, without which many owners couldn’t afford coverage.

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

Writing in the Sun Sentinel, Altmaier’s predecessor, Kevin McCarty, made the correct 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 might explain the commissioner’s praise of DeSantis’ “leadership” in “addressing this issue.”

Florida’s insurance crisis could get even worse with a heaping helping of political ideology and expediency. Fix the problem, not the message.

Want to know the real challenges? Here they are

So let’s talk about the fact that the property insurance market is on the verge of collapse.

On the verge of collapse.

In a state that is uniquely vulnerable to climate change, which will bring increasingly violent weather and the threat of more incremental damage from sea level rise. In a state that continues to inflict higher rates and lavish taxpayer subsidies on insurers. Where lawmakers weaken consumer protections on owners of homes and businesses in the name of fighting fraud, but where fraud remains rampant.

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

Six property insurers that were writing policies in Florida are now defunct. At least five more are in the process of liquidating. Almost all the ones that remain are refusing to renew large blocks of policies or instituting big rate hikes 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 putting more resources into actually investigating and prosecuting fraud — which by all accounts is pretty easy to detect? Big arrests and long jail sentences could convince the shady operators that Florida sunshine isn’t the healthiest environment for them.

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

Lawmakers also need to look at ways to make Florida’s coastlines more resilient. Revisit building codes regularly. Find more incentives for improvements 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 build up this teetering disaster of a property insurance market.

Because while 2022 may be (so far) quiet in terms of tropical weather, we know that storms are coming. And we know Florida’s not ready — and won’t be, without a radical shift in priorities and focus.

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