Skip Walz received a nasty surprise last week when a letter arrived informing him that his home insurance company is being wound up.
As the peak hurricane season approached, Walz rushed to find another insurer before his policy was canceled on August 27.
Thousands more homeowners across Florida are in the same predicament following the liquidation of Sarasota-based Gulfstream Property & Casualty Insurance on July 28.
“A lot of people are struggling with this,” Walz said.
Formed in 2004, Gulfstream operated primarily in Florida, but also sold policies in Louisiana, Alabama, Mississippi, Texas and South Carolina.
The liquidation forces Gulfstream’s remaining 33,000 or so customers in Florida – the company had 2,900 policies in Sarasota and Manatee counties in 2019 – to switch carriers as the hurricane season heats up.
According to the executive director of the Florida Insurance Guarantee Association, Thomas Streukens, it also weighs on the state with around $ 60 million to $ 65 million in unpaid claims and premium refunds.
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Gulfstream failure raises questions about state oversight
Beyond the financial fallout and headaches for homeowners, Gulfstream’s failure raises questions about state oversight of real estate insurers, Walz said, and could add to concerns about a company’s overall health. industry which has at times been very unstable.
The Gulfstream collapse left Walz, a retiree from Vero Beach, wondering what had happened and whether Florida insurance regulators could have done more to protect and warn homeowners.
“Just canceling all of these people right in the middle of hurricane season, to me, doesn’t make sense,” Walz said. “It is mismanagement of the industry in a way.”
Regulators from the Florida Office of Insurance Regulation have formally overseen Gulfstream’s operations for months as the company sought to improve its finances after a net underwriting loss of $ 35 million in 2020.
“OIR’s priority remains consumer protection and encourages consumers to immediately contact their agent for replacement coverage,” said Alexis Bakofsky, director of communications for OIR.
Florida’s property insurance industry has been rocked by catastrophic hurricane seasons, including Hurricane Andrew in 1992 and the eight storms that hit the state in 2004 and 2005.
As large insurers pulled out of the state, smaller firms such as Gulfstream stepped in to fill the void and some of the woes, with 12 Florida-based insurers going bankrupt in a 10-year period ending in 2014.
But Streukens said Gulfstream is only the third Florida-based real estate insurer to go bankrupt since 2014, a period that included a few large-scale hurricanes such as Irma and Michael that made landfall in Florida.
Streukens said Gulfstream still has around 100 Irma claims open.
“Irma continues to wreak havoc in the Florida market,” he said.
Gulfstream’s problems may have spread beyond Florida
However, Gulfstream’s problems may have extended beyond Florida. Louisiana, where Gulfstream has its second highest number of policies, was hit by three hurricanes and two tropical storms last year.
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“The South East has been very difficult, diversification just hasn’t worked,” said Joseph Petrelli, chairman of the insurance industry rating agency Demotech.
Petrelli also echoed an argument made by insurers and many Florida lawmakers that the costs of insurance litigation are out of control in Florida. Excessive litigation hurts many insurers, Petrelli said.
Gulfstream has around 300 outstanding claims that are in dispute, Streukens said.
Critics: Florida’s new law will make it harder to pay claims
Florida lawmakers this year passed legislation targeting what they described as unscrupulous legal practices. Critics said the legislation will make it harder to pay legitimate claims.
Consumer advocates blame the insurance industry’s own practices for many of the problems it faces, saying they contribute to financially fragile businesses that don’t keep enough money in their reserves and divert too much revenue to affiliates for services, which makes their finances worse than they are. are.
Bakofsky said, “The Florida insurance market is one of the most complex in the world and the real estate market is currently facing significant challenges as the frequency of claims increases and claims become more expensive.”
“These challenges are in large part due to the increase in litigation, exacerbated by the increase in catastrophic loss losses following several hurricanes in recent years and by the increase in reinsurance costs due to a hardening of the reinsurance market, “Bakofsky added. “These developments have presented challenges not only for the real estate industry, but also for consumers in Florida.”
Gulfstream executives could not be reached for comment.
Whatever the cause of Gulfstream’s demise, Walz said insurance regulators should have done a better job overseeing the company.
“You’re supposed to have state insurance regulators monitoring these companies,” Walz said, while lamenting that “it sneaked up on people without warning.”
Petrelli said his team spoke with Gulfstream management last year about the company’s financial condition. The company’s surplus had fallen too low.
“We said they have to put money in,” Petrelli said.
Gulfstream entered into a consent order with OIR on May 4. The company has requested the cancellation of 23,311 of 56,000 policies in Florida, saying the cancellations would improve its financial situation.
The consent order states that after losing money in 2020, Gulfstream would have fallen below the state’s $ 10 million surplus threshold without a capital injection of $ 17.1 million.
Gulfstream has provided state regulators with information indicating that, without the policy cancellations, its financial position “will deteriorate to an unsustainable level by mid-2021,” according to the consent order. The company also provided OIR with a letter of intent from an interested investor, a possible financial lifeline for the insurer.
As part of the consent order, Gulfstream was required to submit a business plan demonstrating “the company’s ability to generate successful operating results”.
The hoped-for financial recovery did not materialize.
“The investor and Gulfstream were negotiating in good faith to complete the transaction, but the acquisition was not completed,” Bakofsky said in an email.
On June 21, Gulfstream told OIR it was “unable to comply with the minimum surplus required by” state law.
On June 25, Gulfstream entered into another consent order with OIR that placed the company under public administrative control. Demotech withdrew its rating from Gulfstream on the same day.
Gulfstream policyholders were made aware of the 90-day administrative watch, which aimed to protect Gulfstream’s assets while “facilitating a financial reorganization of the company and / or the placement of its policies with other insurers.”
Walz thought he had time to figure out his home insurance situation, but soon after, the wind up notice came out.
“These people did everything right,” Walz said of Gulfstream policyholders. “They played the game by the rules and then the state just pulled the rug out from under them and said, ‘There you are, you’re on your own, good luck.'”
To pursue Herald-Tribune political editor Zac Anderson on Twitter at @zacjanderson. He can be contacted at [email protected]