Everything You Need to Know About Demotech and Downgrading
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If you’ve been keeping track of the news or live in the state of Florida, you might have heard about the recent controversy surrounding an insurance rating agency called Demotech. In summary, a few small Florida-based insurance companies have been “downgraded” based on their financial strength. Whether or not this affects you depends on your insurance needs and if you’re a Florida resident. Here’s what you need to know about Demotech and insurance rating agencies.
What Exactly is Demotech?
Demotech is an insurance rating agency based in Columbus, Ohio. They primarily specialize in homeowners insurance and have been in the business since 1985. They’re also known for rating smaller insurance agencies, which separates them from other insurance rating agencies like A.M. Best. They provide a rating system ranging from A for unsurpassed to L for licensed. These ratings are based on several factors, including assets, working capital, administrative costs, and more.
Why Are Rating Agencies Important?
Insurance rating agencies help people select the right insurance company for their needs. They also provide this information to the public, regulators, and lawmakers. They’re essential because they provide information about an insurance company’s financial strength. Even so, it should be emphasized that these ratings don’t have to do with customer service. Insurance rating agencies only provide a ranking based on the insurance company’s finances.
What’s Going on With Demotech?
Demotech has been the center of controversy for a series of downgrades involving small Florida insurance companies. For context, many of these previously high-ranked insurance companies either fell out of business or stopped writing insurance for Florida in the wake of Hurricane Andrew. Unfortunately, the federal government requires a minimum insurance rating.
Thus, the remaining insurance companies that survived Hurricane Andrew weren’t ranked. This caused a lot of homeowners to face mortgage problems since they couldn’t comply with loan insurance requirements. Demotech came into the picture since they’re capable of rating small Florida insurance companies. However, they’ve downgraded a few of the remaining ranked insurance companies without warning, leading to some criticism.
What Does This Mean For You?
If you don’t live in the state of Florida, you can try and utilize other insurance ranking agencies like A.M. Best. However, this becomes more complicated if you’re a Florida resident. Getting a high ranking on A.M. Best is much stricter than it is with Demotech. Unfortunately, recent downgrades might make it harder to find an insurance company for your needs. Consistently revisit Demotech’s website at www.demotech.com to keep up with its most recent insurance company rankings.
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