Best’s News Service
By Diana Rosenberg
September 6, 2011
HomeWise Preferred Insurance Co., a Tampa, Fla.-based property/casualty insurer, has been placed into receivership, insolvent because of sinkhole-related claims.
HomeWise Preferred, which primarily wrote homeowners insurance coverage, stopped writing new and renewal policies a year ago. The last policy expired in June, and there are no known policies-in-force and no employees, according to a spokeswoman for the company and the Florida Department of Financial Services website.
The insurer has some 500 claims remaining ? most of those sinkhole related, spokeswoman Rachel Gustafson said.
The company was a “casualty” of sinkhole claims, Gustafson said, adding that a law enacted earlier this year to address noncatastrophe cost drivers, including such losses for Florida’s property/casualty insurers, “came too late.”
The law, signed by Gov. Rick Scott in May, includes provisions that give insurers several means of limiting their payments in sinkhole claims. Among those are a two-year statute of limitations on claims and new definition of what a sinkhole is (Best’s News Service, May 4, 2011).
Sinkhole claims more than tripled in Florida between 2006 and 2009, according to a study last year by the Florida Office of Insurance Regulation. The OIR reported that 66% of claims are concentrated in three counties ? Hernando, Pasco and Hillsborough. However, there is an increase in reported sinkholes in parts of south Florida, including Miami-Dade and Broward counties, where sinkholes historically haven’t been an issue.
More than 200 insurance companies, including HomeWise Preferred, responded to the OIR’s data call. HomeWise told regulators it conducted an examination of 110 sinkhole claims, 55 with policyholders having representation, and another 55 nonrepresented policyholders.
“Reported data involving HomeWise Preferred indicates that policyholders tend to not effectuate repairs, with the percentage opting not to make repairs being higher for claims with representation,” the OIR report said. Of those having representation, 79% of claimants did not make repairs, and 58% paid down their mortgages or transferred the property. Of those nonrepresented claimants, 56% didn’t make repairs, and 40% paid down their mortgages or transferred the property, the OIR report said.
The Florida Department of Financial Services has taken over operations of HomeWise Preferred, which consented to the receivership, according to the order issued by the Second Judicial Circuit Court for Leon County.
Under the order, the department takes possession of all property and assets, including securities and certificates of deposit, of the insurer; authorizes payment of expenses, collects debts and commences legal proceedings, if necessary.
HomeWise began operations in 2006, at a time when other carriers stopped writing policies in Florida following eight hurricanes over the previous two years. In its early years, its client base largely consisted of policies taken over from Citizens Property Insurance Corp., the state’s largest property insurer and last resort insurer (Best’s News Service, March 12, 2007).
The company posted a loss of $15.4 million last year, according to BestLink, which provides online access to A.M. Best’s database of insurance information.
Citizens Property Insurance Corp., which has paid out $1 billion in sinkhole claims over the past nine years, is pursuing a premium increase for sinkhole coverage that, if approved by regulators, will result in some policyholders paying thousands of dollars more each year for such coverage.
Residents in coastal areas of Pasco County, who currently pay an average of $1,270, would see premiums rise to $3,598, while other county residents who currently pay an average $1,475 would pay $4,440. Residents in coastal areas of Hernando County, who currently pay an average $1,356, would pay $5,734, and other county residents, who currently pay an average $1,084, would pay $6,192 (Best’s News Service, July 27, 2011).
Under the new law, rates for sinkhole coverage are not subject to the state-mandated 10% rate cap imposed on Citizens.
HomeWise’s takeover by the state marks the second time in a month a judge has ordered a Florida insurer into receivership. Last month, the Second Judicial Circuit Court ordered National Group Insurance Co., a Coral Cables-based commercial multiperil and automobile liability writer, into receivership for purposes of rehabilitation (Best’s News Service, Aug. 2, 2011).
The top five writers in the Florida homeowners’ multiperil market in 2010 were Citizens Property Insurance Corp., with a 16.06% market share; State Farm Group, with 13.61%; Universal Insurance Holdings Group, with 8.38%; USAA Group, with 4.87%; and St. Johns Insurance Co. Inc., with 3.44%, according to BestLink.
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