Can smaller insurers tackle big storms? Florida says yes

Orlando Sentinel--May 17, 2008

Anika Myers Palm

Sentinel staff writer

About 100,000 Florida homeowners are facing the 2008 hurricane season with a different insurer.

Many were dropped by larger companies and now have policies with smaller, newer insurance companies with unfamiliar names.

But the state insurance-regulation office insists it has imposed such stringent requirements that policyholders are not at a disadvantage if one of the smaller insurance companies holds the policies. Regulators say, in fact, that there’s not much difference between being insured by a large company or a small one.

Many homeowners turned to Citizens Property Insurance, the state-backed insurer of last resort, but even Citizens has allowed upstart companies to assume some of its policies.

When a new company wants to sell policies in Florida, it has to give state officials information about its management team and shareholders, as well as detailed financial information.

Prospective property-and-casualty insurers are required to prove to the Florida Office of Insurance Regulation that they have on hand either $5 million or 10 percent of their total liabilities — whichever is the greater amount.

“The statutory requirement is $5 million, but since 2006, we have sometimes internally required companies to have almost double, sometimes triple [that amount],” said Tom Zutell, a spokesman for the regulation office.

Since 2006, 27 new companies have met the requirements to be licensed in the state, including six since Jan. 1, while an additional 13 either added or were eligible to add property-and-casualty or surplus-lines coverage. The new companies represent nearly $5.3 billion in new capital in the state, according to Office of Insurance Regulation figures.

Agents also say new companies’ robust bank accounts are one of the main reasons policyholders shouldn’t worry too much when hurricane season begins June 1.

“From my own experience, when we had the storms a couple of years ago, I thought [the smaller companies] handled the claims quite well. We did not have any complaints from our customers,” said Toni DeToma, an agent with Mid-Florida Insurance Services in Winter Park.

If policyholders are worried about a new company, they can do a little detective work to find out whether the company is worth their money and time, DeToma said.

But despite DeToma’s confidence, there’s no real way to know how the new companies will perform until another damaging storm comes to the state. After Hurricane Andrew in 1992, 10 companies determined they didn’t have the cash reserves to pay claims and were declared insolvent, according to the Insurance Information Institute. And after two consecutive years of damaging storms, the Poe insurance companies, collectively the state’s third-largest insurer, were declared insolvent in 2006.

“I can sympathize with consumers,” said Michael Gold, CEO of Boca Raton-based People’s Trust Insurance.

Gold said he and his wife hesitated to go with an unknown name when they decided to switch insurance companies a few years ago.

The advantage to their wallets helped them overcome their fears.

“The pricing was interesting enough,” he said.

But when his insurance premiums rose more than 400 percent — and he heard Gov. Charlie Crist call for a change in the way insurance companies do business in Florida — Gold decided to start his own insurance company.

Before he started, Gold had to show the Florida Office of Insurance Regulation that his company had $6 million on hand to pay claims.

What’s different about People’s Trust is that when it started accepting policies a few weeks ago, it took them only via the Internet, cutting out middlemen: agents. People’s Trust now has about 500 policies. He expects the company to have about 100,000 policyholders 18 months from now.

While some companies begin by “taking out” policies from Citizens, Gold said People’s Trust will count on word of mouth and an advertising campaign it plans to launch to gain customers.

But he will be facing people who are reluctant to put themselves and their homes in the hands of companies they don’t recognize.

“It’s like a Catch-22; you want a big company, but on the other hand the big companies are not there,” DeToma said.