Homeowners Insurance Terms for Florida

Adverse Selection

• Adverse selection is the practice of identifying high-risk areas. Insurance companies either charge higher premiums in those areas (concentrating, rather than spreading, the risk) or they refuse to insure against high-risk events entirely. Florida homeowner's insurance policy premiums reflect the practice of adverse selection.

Law and Ordinance Coverage

• Insurance companies are required to automatically include this coverage in homeowner policies. The policyholder must sign a waiver to opt out of it. It covers the cost of construction, repair or demolition required due to the enforcement of any law or ordinance. For instance, if a home is 50 percent destroyed by a covered event, but a local government ordinance requires that the undamaged 50 percent be torn down and rebuilt as well, law and ordinance coverage would pay for the cost of compliance with that ordinance.

Insured Peril

• This refers to coverage for a specific event, such as a hurricane, flood or sinkhole. A direct incurred loss is the property loss that is attributed directly to the insured event. All peril means that the policy covers all events, except for those expressly and specifically excluded.

Pup Companies

• Pup companies are Florida-only subsidiaries of larger (big dog) insurance companies. For instance, Allstate (a big dog) owns Allstate Floridian (its pup). State Farm Mutual Insurance's pup company is State Farm of Florida. Establishing pup companies enables insurance companies to concentrate risk on the Florida policyholder and base Florida policy premiums on Florida statistics alone rather than factoring in national data.

Surplus Lines Carriers

• Surplus Lines Carriers are insurance companies that are not regulated by the state of Florida and are not subject to the premium rating structure established by the Florida Office of Insurance Regulation. They are free to charge whatever they choose. They started to appear in Florida after Hurricane Andrew in 1992, when many insurance companies pulled out of Florida. It is important to note that surplus lines carriers are not backed by the state and are exempt from the Florida Insurance Guaranty Act. If a surplus lines carrier becomes insolvent, the state will not take over paying outstanding claims. The policyholder could be left responsible for the entire cost of repairs.

Consumer Loss Underwriting Exchange (CLUE)

• When a policyholder reports--or even inquires about--damage to his property, regardless whether he files a claim or that a claim results in a payment from the insurance company, it is documented in a CLUE report. Similar to a credit report, insurance companies can raise premiums or even cancel policies based on information appearing on this report.