The Property Insurance Market in the “Sunshine State” Looks Cloudy

Insurance against unexpected misfortune is a must.

But what if the insurance company itself is in trouble? That’s the dilemma which many Florida property owners face.

Here’s an NBC News headline from May 21:

Roofing scams put Florida’s property insurance market ‘on the verge of collapse’

The failure of insurance companies was addressed in Robert Prechter’s must-read, Last Chance to Conquer the Crash:

In a crash and depression, we will see falling asset values, massive layoffs, high unemployment, corporate and municipal bankruptcies, pension fund implosions, bank and insurance company failures and ultimately social and political crises. The average person, who has no inkling of the risks in the financial system, will be shocked that such things could happen, despite the fact that they have happened repeatedly throughout history. [emphasis added]

One way to prepare for a major financial crisis is to investigate insurance firms (as well as other financial institutions such as banks) for soundness and safety.

Let’s return to Last Chance to Conquer the Crash:

As far as I can tell, Weiss Ratings, Inc. has produced reasonably reliable ratings of U.S. insurance companies. Their system is simple and straightforward. Unlike the maze of gradations such as “Bbb+” and so on that other services use, the Weiss system simply reads like a report card, from A+ down to F, adding only a set of “E” grades prior to F. Weiss considers any company rated B- or above to have “good” financial safety but recommends that you do business with companies rated B+ or better. In normal times, that assessment is probably all you need. If you believe, however, that there is a reasonable risk of that rare and devastating event, a deflationary crash and depression, why not demand the absolute best?

As prudent as the judgments of a rating service may be, any such ratings do not fully take into account other considerations that will be crucial in a depression. For example, what bank(s) does your insurer use to hold its assets and make transactions? If an insurer’s main bank implodes, its situation could become chaotic. This one factor could override an insurer’s A+ credit rating. Ratings can change for all sorts of reasons. For maximum confidence, keep abreast of ratings as they pertain to the companies you choose, but do your own research as well.