The Joint Legislative Budget Commission next week is expected to consider a proposal to spend $1.5 million to hire a consultant that would look at options for property insurers to get adequate financial ratings.

Such ratings are important, in part, because mortgage-industry giants Fannie Mae and Freddie Mac require homes to be insured by financially sound companies. If insurers lose satisfactory ratings, homeowners could be forced to find other coverage.

State insurance regulators scrambled in July after they said the Demotech ratings agency threatened to downgrade 17 insurers amid widespread financial problems in the property-insurance market. Demotech ultimately downgraded one company and withdrew ratings for two companies, according to the proposal going before the legislative panel next week.

Insurance Commissioner David Altmaier and state Chief Financial Officer Jimmy Patronis publicly questioned Demotech, with Patronis sharply criticizing the agency in letters to leaders of Fannie Mae, Freddie Mac and the Federal Housing Finance Agency.

"If (Fannie Mae and Freddie Mac) de-authorized a sizeable percentage of Florida's insurers based on the dubious ratings of one company, it would create financial chaos for millions of Floridians," Patronis wrote.

The Department of Financial Services, which Patronis heads, submitted the $1.5 million proposal to the Joint Legislative Budget Commission, which will meet Sept. 9 and has power to make mid-year budget decisions. The results of the consultant's work would go to Gov. Ron DeSantis and lawmakers for possible consideration during the 2023 legislative session.

"Demotech's business practices appear to have caused confusion and concern for Floridians regarding the Florida insurance market," the proposal said. "Due to the concern of the methodologies used by Demotech and the impact that questionable downgrades will have on millions of Floridians, immediate action is required. The spending authority provided in this budget amendment will allow key stakeholders to research and explore more predictable and reliable financial rating services or alternative solutions."

Demotech President Joseph Petrelli in July defended the company's methods and said the company has rated Florida insurers since 1996.

"Demotech has worked diligently to be a positive force in the resurrection and sustenance of the Florida residential property insurance marketplace that was devastated by Hurricane Andrew," Petrelli wrote in a six-page letter to Altmaier, referring to the massive 1992 hurricane. "Since 1996, Demotech has consistently applied its rating methodology and appeal process to all rated insurers. Our process does not guarantee every carrier's financial success, nor does our process guarantee carriers an FSR (financial stability rating) at a level that they desire or require."

The ratings issue has come at a turbulent time in Florida's property-insurance market, as carriers have shed policies and sought large rate increases because of financial losses. Five insurers have been deemed insolvent since February and a large carrier, United Property & Casualty Insurance Co., announced last month it is exiting the homeowners' market.

United Property & Casualty was one of the 17 companies targeted by Demotech, which downgraded and then withdrew the company's rating.

After the initial downgrade of United Property & Casualty, the state Office of Insurance Regulation on Aug. 2 put the company into a new stopgap program aimed at making sure coverage would continue for homeowners.

The program involves the state-backed Citizens Property Insurance Corp. acting as a financial backstop for private insurers that get downgraded. Citizens took on a reinsurance role to help make sure claims get paid if insurers go insolvent.

The program is designed to satisfy Fannie Mae and Freddie Mac in such situations. It uses an exception in Fannie Mae and Freddie Mac standards that applies when reinsurers take responsibility for paying claims if insurers go belly up.