Many outlets are reporting about property insurance companies getting downgraded. So what exactly is a 'downgrade'?
Just about every company that writes homeowners insurance in Florida is rated by a financial rating company that assigns a grade based on the company's financial strength. This acts similarly to a credit score and shows the ability of the company to pay future obligations. The popular companies that grade these companies are A.M. Best, Demotech, and Kroll Bond Rating Agency. The most common rating agency for Florida-based insurance carriers is Demotech which assigns ratings such as A'' (Unsurpassed), A' (Unsurpassed), A (Exception), S (Substantial), or M (Moderate). A company with a higher rating such as an A'' should be more likely to be able to pay future claims than a company rated an M which is obviously helpful to know as a consumer.
Another reason these grades are so important is that lenders who use Fannie Mae and Freddie Mac have requirements for which grades are acceptable for home insurance. If your insurance company is downgraded below the minimum acceptable rating, your lender may require you to obtain new insurance or will "force place" insurance. Not only does this mean a home insurance carrier could lose thousands of policies if they are downgraded, it means that they will lose premiums that would have been marked to pay current and future claims, employee salaries, overhead, and reinsurance costs. This is why many carriers never recover once they get downgraded.
If your insurance carrier gets downgraded its important to act quickly. Speak to your agent about what the next steps may be. If your carrier is downgraded below an acceptable level, it could spell trouble for that company and may leave you without insurance coverage.
If you would like to speak to an agent about your homeowners insurance, you can schedule a free consultation here: https://form.jotform.com/220265097565056