News & Updates


New, smaller companies pose new risks

Tallahassee Bureau Chief

Before hurricanes started blowing through Florida in 2004, a few big names dominated the state’s property insurance market.

State Farm, Allstate, Nationwide, USAA. Add the state-backed Citizens Property Insurance Corp., and those players had about 3 million residential policies.

But all that changed after eight hurricanes hit the state in 2004 and 2005. Many big companies headed for the exits or refused to take on new customers, leaving the market to smaller, Florida-based companies that, in many cases, didn’t exist before 2004.

Now, when homeowners shop for coverage with insurance agents such as Mark Mullin, they typically have two choices: one of the newer firms or Citizens.

“There’s no big players left in the regular homeowners’ market,” said Mullin, president of the Ormond Beach agency Mullin & Co.

The transformation of Florida’s market affects the ability of homeowners to find coverage and the amounts they have to pay. Also, it has spurred repeated debates among state and industry officials about whether smaller companies can survive financially if a major hurricane hits.

Regardless of the debates, however, it is clear Florida has placed a big bet on homegrown companies.


Since Jan. 1, 2006, regulators have approved 27 new companies to sell homeowners or mobile-home policies in the state. Those companies are helping fill a vacuum created by old-line insurers that stopped writing new policies or systematically dropped hundreds of thousands of customers to reduce financial risks.

USAA, a company that specializes in insurance for military families, puts it succinctly when visitors to its Internet site express interest in buying homeowners policies in Florida.

“We offer homeowners and renters insurance on a very limited basis in Florida because of high exposure to weather-related catastrophes,” USAA says.

Contrast that with a company that started operating in 2005, Ormond Beach-based Security First Insurance Co., which has run television ads to draw business — and tries to put potential customers’ minds at ease about its financial strength.

“We’ll be here for you storm after storm, year after year,” company President Locke Burt, a former state senator, said in one of the commercials.

In some ways, it is difficult to compare companies that have come into the market in recent years with insurers that have done business in the state for decades.

Newer companies, for instance, can often be more selective in writing policies. Meanwhile, a company such as State Farm has a statewide customer base that is already established.

A state Internet site,, offers a crude way to look at how much companies charge for coverage. Using two examples on that site, it appears many smaller Florida companies charge less than national insurers in Volusia and Flagler counties.

But that Internet site doesn’t capture all of the dynamics of the market. For example, a company might have low rates in a particular county — but write few policies there.

Also, in setting criteria for writing policies, companies look at factors such as the location, age and even value of homes.

As an example, companies might want to be highly competitive in North Florida and inland areas but not expose themselves to the risks of doing business in South Florida and on barrier islands.

Similarly, as some newer companies have ramped up their businesses, they have sought to insure homes constructed after a statewide building code took effect in 2002. That code included more stringent requirements to help homes better withstand hurricanes.

“The newer the home, the better,” said Daytona Beach insurance agent Richard Brown, president of Hayward Brown Inc.

But even that thinking isn’t universal. Robert Ritchie, president of Tampa-based American Integrity Insurance, said his firm, which was approved to do business in 2006, has focused on older homes.

Mullin and Brown said some companies want to insure high-value homes, with Brown saying he has had luck finding coverage for homes valued at $600,000 or more. The agents said some national companies, such as Chubb and Fireman’s Fund, are willing to insure those types of homes.

Another exception to the trend toward smaller companies is that Allstate’s Castle Key subsidiaries expect to add 100,000 policies by November 2011, under an agreement reached last year with state regulators.

But those additions will only make up part of the hundreds of thousands of Allstate policies that have been dropped since 2004.

The state’s reliance on newer and smaller companies likely will grow in the coming years if State Farm carries through on a decision to stop writing homeowners’ coverage in Florida.

Regulators have been negotiating behind the scenes with State Farm, which announced early this year it would gradually pull out of the property market because financial losses threatened the solvency of its Florida subsidiary.

While details of the negotiations are unclear, speculation has centered on the possibility that State Farm would reduce its number of policies but continue to do business in Florida.

Even if that happens, many dropped customers likely will have to turn to newer companies or Citizens for coverage.


Since State Farm announced its plans, regulators have been trying to avoid a wholesale dumping of policies into Citizens, which already is the largest insurer in Florida with more than 1 million policies.

Sean Shaw, the state’s insurance consumer advocate, said Citizens often has to take policies that other insurers don’t want. He said Citizens is “left with the worst of the worst, and that’s not a sustainable system.”

Shaw said he wants to see a competitive market that includes a mix of large insurers, Florida-based companies and Citizens.

But with the state going more toward the smaller companies, a major question centers on whether some firms would have the financial strength to survive a hit from a major hurricane or multiple hurricanes.

Economist Robert Hartwig, president of the industry-backed Insurance Information Institute, said the increase in the number of smaller companies gives consumers more choices. But he said the companies have never been “battle tested” by having to pay claims after a hurricane.

Two small insurers licensed since 2004 — Coral Insurance Co. and American Keystone Insurance Co. — were placed into state receivership this year because of financial problems. Those problems occurred without hurricanes blowing into Florida since 2005.

Hartwig said the non-hurricane failures of Coral and American Keystone are signs that some smaller companies have problems.

“That raises some doubts,” he said. “That’s a big red flag.”

National insurers such as State Farm and Allstate have pumped hundreds of millions of dollars into their Florida operations after past hurricanes. But smaller, Florida-based companies wouldn’t enjoy such a backstop.

Many of the smaller companies also do not have large amounts of money built up, though they meet state regulatory standards.

“I’m worried to death over the finances of some of these companies,” Mullin said.