Reinsurance is the key to homeowners insurance companies' financial stability. It may sound complicated, but it doesn't have to be. We've created this section to help you gain a clear understanding without having to decipher industry jargon. We want you to be able to make an informed decision to protect your home and family—every year.
Reinsurance is simply insurance for insurance companies--back-up coverage. For risk management, all Florida homeowners insurance companies purchase reinsurance to transfer some of the risk to reinsurers. If a hurricane makes landfall, and depending on the amount of reinsurance a company purchased, recovery funds from reinsurers become available to help the insurance company pay claims. However, if the company does not purchase enough reinsurance, it may not be able to pay its claims and could become insolvent.
Not all insurance companies are required to purchase the same amount. Important: this is the major reason all Florida home insurance companies are not equally as strong. Each company determines how much reinsurance they purchase by using hurricane models to estimate their exposure to hurricane losses. Some home insurance providers only purchase the minimum amount of reinsurance suggested by Florida regulators. This is supposed to be enough to withstand a single large event and two smaller events. Mother Nature, however, is not predictable. As the 2004 hurricane season showed, a multitude of storms can occur in a single year.
Not all companies publish detail about their reinsurance program on their website. If you're having trouble locating this information, talk with your insurance agent and call the insurance company to ask them how many hurricanes they can withstand. Do they have enough reinsurance to endure another 2004 hurricane season with four storms?
Home insurance companies purchase reinsurance every year. Most companies have a program in place by June 1st, before the start of the hurricane season. June 1st, or just prior to your policy's renewal, is a good time to conduct your evaluation. A company may be financially stable at the time you purchased your policy, but this doesn’t mean they will be as financially strong when it's time to renew. In fact, if the company were to poorly manage their growth, they may not have the funds necessary to purchase adequate reinsurance coverage.