TALLAHASSEE, Fla. (AP) – Jan. 14, 2009 – The state’s insurance commissioner Tuesday tried to calm fears about the solvency of small companies stepping in to replace industry giants that have reduced homeowner coverage in Florida due to the state’s hurricane risk.
Commissioner Kevin McCarty told Gov. Charlie Crist and the state Cabinet that he’s not concerned about the solvency of the companies “at this juncture” in part because of regulations that keep insurers from putting significant assets into risky investments that have tanked during the current financial meltdown.
“Over the years, state regulators have been much maligned because companies couldn’t invest in some of these high risk things,” McCarty said. “To date, due to conservative investment structure policy and our oversight, we have not seen any failures in the insurance industry.”
Chief Financial Officer Alex Sink said she was “much more confident” after hearing McCarty’s report.
Sink later said she would still advise consumers to check out the smaller companies, many of them new to Florida, before signing up for policies. She had asked for McCarty’s report in response to questions from the public.
As national companies have backed away from Florida, the state-created Citizens Property Insurance Corp. became the state’s largest homeowners’ insurer with just more than 1 million customers.
Citizens, envisioned as an insurer of last resort, has been attempting to move policies to some of the smaller companies, which typically offer lower rates. Many Citizens policyholders are being sent letters advising them they are being spun off, but customers can opt to stay with Citizens by returning signed forms.
McCarty said 400,000 policies have come out of Citizens since its peak.
“It really is a success story in terms of building markets, building capital and building our commitment to the private sector,” McCarty said.
Insurers’ exposure to high-risk investments is limited by laws that require them to diversify their investments. But they are being affected by the overall stock market declines. McCarty said regulators will not know exactly how much until after receiving companies’ annual reports in March although they have been on the lookout for trouble in the meantime.
The companies also must meet other criteria that ensures they’ll have sufficient assets to cover potential losses, McCarty said.
Homeowner policies cover only wind damage from hurricanes and other storms. Consumers worried about water damage can buy federal flood insurance at relatively low rates, McCarty said.