FL Home Insurance Exchange vs "traditional" Home Insurance

[WalkingBackToHouston]

Has anyone had any experiences with Home Insurance Exchanges in Florida? For my case anyway, it's a lot cheaper even considering the surplus contribution. When I first heard about it my initial concerns for the one I am looking at seem to be satisfied (I think/hope) by:

1) Policies are nonassessable. I understand this to mean that individual policy holders aren't liable for if/when losses exceed reserves?
2) They are reinsured. I understand this to mean that if losses ever do exceed reserves, then the reinsurance company picks up the difference?
3) Demotech rating is A for the one Im looking at anyway

I suppose they could just pull out of the market at any time, or raise rates substantially upon renewal, but the same could be said for traditional insurance as well.

Is there anything else about this type of insurance I should be concerned about? Anyone have a feel for their claims paying reputation?

Thank you.

[rossington]

Has anyone had any experiences with Home Insurance Exchanges in Florida? For my case anyway, it's a lot cheaper even considering the surplus contribution. When I first heard about it my initial concerns seem to be satisfied (I think/hope) by:

1) Policies are nonassessable. I understand this to mean that individual policy holders aren't liable for if/when losses exceed reserves?
2) They are reinsured. I understand this to mean that if losses ever do exceed reserves, then the reinsurance company picks up the difference?
3) Demotech rating is A for the one Im looking at anyway

I suppose they could just pull out of the market at any time, or raise rates substantially upon renewal, but the same could be said for traditional insurance as well.

Is there anything else about this type of insurance I should be concerned about? Anyone have a feel for their claims paying reputation?

Thank you.

Are you speaking of Tower Hill?

[WalkingBackToHouston]

Has anyone had any experiences with Home Insurance Exchanges in Florida? For my case anyway, it's a lot cheaper even considering the surplus contribution. When I first heard about it my initial concerns seem to be satisfied (I think/hope) by:

1) Policies are nonassessable. I understand this to mean that individual policy holders aren't liable for if/when losses exceed reserves?
2) They are reinsured. I understand this to mean that if losses ever do exceed reserves, then the reinsurance company picks up the difference?
3) Demotech rating is A for the one Im looking at anyway

I suppose they could just pull out of the market at any time, or raise rates substantially upon renewal, but the same could be said for traditional insurance as well.

Is there anything else about this type of insurance I should be concerned about? Anyone have a feel for their claims paying reputation?

Thank you.

Are you speaking of Tower Hill?

The one I am looking at is Ovation. I think Tower Hill is a very similar product though. Feedback on either or others would be helpful. I was trying to keep the query to insurance exchanges in general to increase the odds of getting some feedback since these are relatively new options.

[exodusNH]

Has anyone had any experiences with Home Insurance Exchanges in Florida? For my case anyway, it's a lot cheaper even considering the surplus contribution. When I first heard about it my initial concerns for the one I am looking at seem to be satisfied (I think/hope) by:

1) Policies are nonassessable. I understand this to mean that individual policy holders aren't liable for if/when losses exceed reserves?
2) They are reinsured. I understand this to mean that if losses ever do exceed reserves, then the reinsurance company picks up the difference?
3) Demotech rating is A for the one Im looking at anyway

I suppose they could just pull out of the market at any time, or raise rates substantially upon renewal, but the same could be said for traditional insurance as well.

Is there anything else about this type of insurance I should be concerned about? Anyone have a feel for their claims paying reputation?

Thank you.

Demotech's ratings can't be compared to traditional insurance rating agencies. If an insurance company doesn't have a rating from a company like AM Best, it's likely because they're too small or have something to hide.

Reinsurance doesn't guarantee anything, since it also has limits. E.g., the insurance company's reserves cover $x. Reinsurance covers $x+1 - $y. If the damage exceeds $y, the insurance company is back on the hook.

[Svensk Anga]

I could understand them being a bit cheaper, since they don't have to support a regular insurance company profit margin. But a lot cheaper? I don't get it. The major cost has to be the loss exposure. I'm guessing that they cut it too close on the reinsurance in order to keep their rates down to where customers might take a chance on a new concept. Not much is lost if the entity blows up. But if they have inadequate reserves and/or reinsurance, why would the state regulator approve them? I think the state is anxious to unload risk from Citizens and provide some relief on premiums and so is inclined to be lax on approval standards.

Demotech likely benefits by having more entities to rate. Commercial interest gets in the way of objective analysis. Reminds me of Enron's auditors giving them a clean bill of health right up till the end.

[WalkingBackToHouston]

Has anyone had any experiences with Home Insurance Exchanges in Florida? For my case anyway, it's a lot cheaper even considering the surplus contribution. When I first heard about it my initial concerns for the one I am looking at seem to be satisfied (I think/hope) by:

1) Policies are nonassessable. I understand this to mean that individual policy holders aren't liable for if/when losses exceed reserves?
2) They are reinsured. I understand this to mean that if losses ever do exceed reserves, then the reinsurance company picks up the difference?
3) Demotech rating is A for the one Im looking at anyway

I suppose they could just pull out of the market at any time, or raise rates substantially upon renewal, but the same could be said for traditional insurance as well.

Is there anything else about this type of insurance I should be concerned about? Anyone have a feel for their claims paying reputation?

Thank you.

Demotech's ratings can't be compared to traditional insurance rating agencies. If an insurance company doesn't have a rating from a company like AM Best, it's likely because they're too small or have something to hide.

Reinsurance doesn't guarantee anything, since it also has limits. E.g., the insurance company's reserves cover $x. Reinsurance covers $x+1 - $y. If the damage exceeds $y, the insurance company is back on the hook.

Thank you for more to consider

[WalkingBackToHouston]

I could understand them being a bit cheaper, since they don't have to support a regular insurance company profit margin. But a lot cheaper? I don't get it. The major cost has to be the loss exposure. I'm guessing that they cut it too close on the reinsurance in order to keep their rates down to where customers might take a chance on a new concept. Not much is lost if the entity blows up. But if they have inadequate reserves and/or reinsurance, why would the state regulator approve them? I think the state is anxious to unload risk from Citizens and provide some relief on premiums and so is inclined to be lax on approval standards.

Demotech likely benefits by having more entities to rate. Commercial interest gets in the way of objective analysis. Reminds me of Enron's auditors giving them a clean bill of health right up till the end.

Thank you. I found your comments helpful. For me I'm just not going to insure for wind (eg hurricane) at traditional rates. But if I go with the exchange I won't know if I've been paying for something inadequate unless and until it's stress tested. I find it a particularly difficult decision to make.

[orlandoman]

As a FL resident, I try & keep up with HO ins. stuff also.

- - - This is from Tower Hill's website, other 'admitted' HO companies should be similar in the FL market:

"Whereas conventional carriers are owned by shareholders or private investors, reciprocal insurance companies are owned by their members. Some of the best known and popular reciprocals are USAA, Farmers Insurance, Privilege Underwriters Reciprocal Exchange (PURE), and Erie Insurance."

"Tower Hill Insurance Exchange is an admitted carrier and its members are protected by the Florida Insurance Guarantee Association (FIGA). The Exchange also purchases coverage from the Florida Hurricane Catastrophe Fund (FHCF) to reduce its overall loss in the event of a hurricane."

FAQ's here, give a good understanding https://www.thig.com/companies/tower-hi ... 20accounts.

[WalkingBackToHouston]

As a FL resident, I try & keep up with HO ins. stuff also.

- - - This is from Tower Hill's website, other 'admitted' HO companies should be similar in the FL market:

"Whereas conventional carriers are owned by shareholders or private investors, reciprocal insurance companies are owned by their members. Some of the best known and popular reciprocals are USAA, Farmers Insurance, Privilege Underwriters Reciprocal Exchange (PURE), and Erie Insurance."

"Tower Hill Insurance Exchange is an admitted carrier and its members are protected by the Florida Insurance Guarantee Association (FIGA). The Exchange also purchases coverage from the Florida Hurricane Catastrophe Fund (FHCF) to reduce its overall loss in the event of a hurricane."

FAQ's here, give a good understanding https://www.thig.com/companies/tower-hi ... 20accounts.

Thanks! Does FIGA and FHCF only come into play when an insurer becomes insolvent?

[orlandoman]

The Florida Insurance Guaranty Association, created by legislation, handles the claims of insolvent property and casualty insurance companies.
https://figafacts.com/

The Florida Hurricane Catastrophe Fund (FHCF) is a tax-exempt state trust fund that provides reimbursements to residential property insurance companies for a portion of their catastrophic hurricane losses in Florida. https://fhcf.sbafla.com/about-the-fhcf/

[talzara]

3) Demotech rating is A for the one Im looking at anyway

Demotech's ratings can't be compared to traditional insurance rating agencies. If an insurance company doesn't have a rating from a company like AM Best, it's likely because they're too small or have something to hide.

In Florida, most houses are insured by Demotech-rated insurers because they will be rejected by A.M. Best-rated carriers.

A Demotech rating of A is equivalent to an A.M. Best rating of B. This used to be considered a junk rating. Fannie Mae has lowered its standards for political reasons. If it kept standards high, most houses in Florida wouldn't qualify for mortgages.

The homeowners insurance market in Florida is so bad that there are even Kroll-rated insurers. Those are the insurers that think Demotech is too strict!

[talzara]

I could understand them being a bit cheaper, since they don't have to support a regular insurance company profit margin. But a lot cheaper? I don't get it.

The Ovation Insurance Exchange still has to support a profit margin. The profits are earned outside the exchange by Ovation Risk Managers, the attorney-in-fact.

In an insurance company, the underwriting results are consolidated with the corporate overhead. If the insurer makes too big of an underwriting loss, the company will also be unprofitable. If the insurer runs out of reserves after a major hurricane, the company will go bankrupt.

An insurance exchange usually pays a fixed percentage of the premium to the attorney-in-fact. The AIF has a separate income statement that is not consolidated with the exchange. The underwriting results stay in the exchange. If the exchange makes an underwriting loss, the AIF will still make a profit. If the exchange runs out of reserves and goes bankrupt, the AIF will not go bankrupt.

It's like a second layer of limited liability. The shareholders have no liability for the AIF's debts, and the AIF also has no liability for the exchange's debts.

This is why Florida insurers have been starting exchanges with themselves as the AIF. The homeowners insurance market in Florida is so bad that they want to separate themselves from the underwriting results.

To cut out the profit margin, you don't need an exchange. You need to own the company where the profits are made. State Farm is not an exchange, but it is a mutual insurance company. State Farm hasn't made an underwriting profit in years because it sets rates to break even.

But if they have inadequate reserves and/or reinsurance, why would the state regulator approve them? I think the state is anxious to unload risk from Citizens and provide some relief on premiums and so is inclined to be lax on approval standards.

Florida also has Kroll-rated insurers. These are the insurers that think Demotech's standards are too high.

There's another Florida homeowners insurance thread about being depopulated from Citizens and being moved to a company that started writing insurance two months ago: viewtopic.php?t=451237

That's how bad the homeowners insurance market in Florida is.

[MrBeaver]

No knowledge of any specifics, but I heard an interesting theory of state-run or co-op insurance incentives:

When they end up having to pay larger claims than anticipated, they will have to raise rates to either increase reserves or pay increased reinsurance premiums. This is equivalent to shifting current risk into the future, to be paid for by future rate payers. Ergo, they can offer lower rates now only if their projections of future losses (plus the impact on rates from profit they are not taking) are more optimistic than other competitors with higher rates.

As to which prediction is more accurate about the future? Nobody knows yet.