Did you know your homeowner insurance company is insured? And that the amount of insurance it carries could have a huge impact if you have to make a claim due to a devastating event? Like a tree falling on your house during a hurricane!
The concept of "reinsurance," as this coverage is known, may seem like industry jargon but it is an important factor to consider when buying homeowner insurance. Simply put, reinsurers insure insurance companies against risk like a catastrophic event. The insurance companies pay a premium to these companies, and in turn can be confident that they will have the resources to pay every claim in the event of catastrophic losses.
Why is this important to you? You want to make sure the insurance company you choose has enough reinsurance to handle any volume of claims, especially in hurricane-prone Florida, where multiple storms can occur in one season, as they did in 2004. Insurance companies need to be covered so that they are able to cover you in event of a claim.
Reinsurance means your insurance company has plenty of money to pay claims, no matter what a storm season brings. Insurance companies must buy reinsurance protection, but they don't all buy the same amount. If your insurance provider does not have adequate coverage -- or loses a reinsurance provider -- they could be slow in paying claims after a catastrophic event or series of events, which could seriously impact you as a policy-holder with a claim.
So it's important to know where any insurance company you do business with ranks in terms of reinsurance. Fortunately, it's not difficult to find that out. There are rating services that allow you to see immediately how a company ranks in terms of reinsurance and financial stability.
What is important to look for is the level of retention (otherwise known as a deductible) that an insurance company holds relative to their policyholder surplus (capital on hand to pay claims). American Integrity puts less than 10% of their surplus “at risk” for any one particular storm. Also, the size of reinsurance towers, which albeit look like Lego blocks, is important to analyze. The reinsurance is purchased to buy enough coverage to ensure a single event is controlled, but also, multiple events (think about the 2004 storm season) are contained within the reinsurance program. For example, if the 2004 storm season would happen in 2015, American Integrity would not only be able to sustain all four events but still have approximately $300 million of coverage left for any further events during the season.
For more information on this topic please refer to the links below.
-Demotech, http://www.demotech.com/ measures the financial stability of insurance providers. An exceptional rating means the company should be able to withstand a single 2004-type 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.
For more in-depth information on American Integrity's reinsurance program, and to see a list of its reinsurance partners and their A.M. Best ratings, visit this page.