Over the past three years of mild Florida hurricane seasons, your own home insurance company should have been building up its cash reserves. However it doesn't look like that has happened with many companies.

Despite this recent period of mild hurricane seasons, the financial stability of many Florida home insurance companies is facing serious trouble. More than 50% of the companies that are writing new business in Florida lost money during the past twelve months. Three companies failed completely and had to be taken over by the state. One of the companies that failed wrote new business exclusively in the 12 most southern coastal counties in the state. Why are these companies failing and why is it that so many companies are losing money?

For starters, Florida home insurance rates have been held artificially low by the state for the past three years by the legislators. While it has been politically popular with voters to do this, low rates have contributed substantially to the poor finances of these companies. Florida's state run insurance company - the largest company in the state sets the benchmark for rates in the market. Because it does not charge enough for the coverage it offers, private companies are forced to keep their rates lower - whether they are losing money or not. Newly formed companies that take policies out of the state run insurance company have to price their policies at or below the state run company virtually guaranteeing that they will lose money from the start.

There has also been an increase in non-hurricane claims and reopened claims from prior hurricanes. The tough economy is a factor because anyone who experiences a loss when times are tough is more likely to file a claim in the present environment. Florida home insurance companies are also experiencing more fraudulent and suspicious claims at the present time. This fraud can involve filing a claim during normal rain storms in order to get money to fix an outdated roof. It could also include suspicious fire claims along with theft claims from home burglaries that include high value items the homeowner never owned. Finally, there has been a rise in new and re-opened hurricane claims from the storms of 2004/2005 which led directly to the collapse of one company that had exhausted its reinsurance coverage.

Last but not least, investment income is way down. Florida home insurance companies are constantly looking for ways to generate a safe return on their surplus funds. That's not an easy task for fund managers in our current financial markets. Low and risk free rates of return are way down due in part to low interest rates in our slumping economy. Finding places to invest surplus cash with higher rates of return could result in unacceptable risk levels. After all, it is unacceptable for your company to deny or delay your claim because it lost your money by investing in a risky stock market.

Your first reaction to the poor performance of these companies might be one of very little concern. After all, why should you care if an insurance company makes money?

Even if you are the biggest hater of insurance companies ever born, it is still important for your company to make a reasonable profit - especially in non-hurricane years. Those years are supposed to be the time when these companies take in a lot more in premium and pay a lot less out in claims. The fact that this hasn't happened for most companies should be sending out alarm bells across the state of Florida.

Politicians have told you that large insurance companies are evil and it is possible that some of them are. But it is the newest, smallest home insurance companies that can't make money in these mild non-hurricane years. These companies are the future of Florida home insurance. If they don't make even a bare minimum amount of money during non-hurricane years, don't expect them to be around to pay your claim after the next Florida hurricane.

If you are looking for a new homeowners insurance company, now is not the time to be buying based on price. You have to do your research. If you simply buy the lowest price policy, you'll be the one struggling financially if your company goes out of business and has to be taken over by the state.

This article is free for republishing

About Author
Michael Letcher is a senior executive and a licensed CPA. His on-line guide can help you save on Miami homeowners insurance quotes. Find out the secrets to inexpensive Dade County homeowners insurance in his free newsletter at => http://www.homeinsurancebuyers.org