Kevin McCatry, of the Office of Insurance Regulation, announced that six fairly obscure insurance companies have taken the insurance for 100,000 risks which were previously underwritten by Citizens Property Insurance Corporation. The good news for consumers is that their new insurance carriers are insuring them for the same or better coverage and for the same or better price. What a deal!! Or is it?
As much as I have criticized large and mature property insurers such as Allstate, Nationwide, and State Farm, I always knew that they had professional claims management and could pay any claim. Our experiences with smaller carriers vary. Generally, claims management of small carriers is less professional, and their capabilities are extraordinarily stretched following a catastrophe.
Further, companies with little surplus (net worth in insurance terms) often come up with creative claims policies and decisions which invariably involve paying less than what is owed or extending the time for payment with excuse after excuse. For example, Southern Family and Atlantic Preferred were two companies that were part of the Poe Insurance Group that became insolvent following Hurricane Wilma in 2005. The Poe companies were never strong financially. The four 2004 storms caused a rash of bizarre interpretations of policy language, all favoring non-payment. It got worse after Hurricane Wilma, and speculation was rampant that the claims personnel were given the customary "do not pay if you do not have to" orders from management.
How valuable is insurance that is not going to pay promptly and in full? How valuable is a deal for better coverage if the insurer is going to not have sufficient assets to treat the policyholder in good faith, with an eye towards payment rather than safeguarding the company treasury? Surplus is important to insurance companies and their customers because it shows the company’s ability to pay unanticipated losses. It is a value after you take away all the anticipated claims. Insurance companies with big surplus have the financial means to do things right.
Those without big surplus often cheat to stay in business or are cheating on the level of service they provide to customers because they simply cannot afford to do things right. Hopefully, these smaller companies will find top notch methods of insurance operations. But insurance is unlike any other business because the delivery of the insurance company’s product often does not occur until years after the first policy is written. Talk is often loose and cheap until the claim arrives; only then will anybody know how good of a deal these takeout companies really offered to Citizens’ customers.