Your insurance company should have a robust reinsurance program, purchased through reputable reinsurance companies. What is a reinsurance company? Simply: "an insurance company which insures insurance companies." Reinsurance helps pay for losses in the event of a major disaster. Just as homeowners purchase insurance to reduce their financial loss in the event of a major accident, insurance companies purchase reinsurance to reduce their financial loss in the event of a major catastrophe.
All Florida insurance companies are required to buy reinsurance, but not all companies purchase the same amount, and some have much stronger coverage than others. If an insurance company doesn't have strong reinsurance, they may not be able to make prompt claim payments in the event of a catastrophic disaster, such as a hurricane, leaving policyholders in a tough spot during a traumatic time.
Below are some questions you should ask when trying to decide if your insurance company has adequate reinsurance:
- Have they partnered with a variety of reinsurance companies?
Reinsurance protection is large. The policies are so large that it takes many reinsurers to create a single treaty (reinsurance policy).If the insurance company has not signed on multiple reinsurers, they may have too much of their risk with a limited amount of partners. If one of those reinsurance companies decides not to participate come renewal time, the insurance company will be left scrambling to find a new partner for a large portion.
- How many storms (events) have they purchased reinsurance for?
In 2004 Florida was hit by four hurricanes in one season. Make sure your insurance company has enough coverage to handle multiple events. They might have fantastic coverage for the first hurricane, but if another one hits and they didn’t purchase an adequate amount for a second or third event this could be a problem.
- Are the reinsurance companies highly rated?
Most reinsurance companies will have an A.M. Best rating to indicate their ability to pay claims. Make sure your insurance company has partnered with highly rated companies with ratings like A-, A or A+.
- Does your insurance company have a proper deductible (retention) for their reinsurance?
Your agent should be able to inform you if an insurance company could lose a sizable portion of its surplus should multiple storms occur, such as in 2004. A Demotech rated A company should be able to withstand a single 2004 year, and a few companies, such as American Integrity, would be able to pay multiple years of hurricane claims, living up to its policy holder promise.
While the topic of reinsurance can get complicated, from a high level it’s fairly simple. An insurance company needs protection just like a homeowner. Your policy protects the most important things in your life, like your family and home. Our policy protects the most important thing to our business, our policyholders. To learn more about American Integrity’s reinsurance program click HERE.