Lawmakers must confront painful property insurance challenge
The Tampa Tribune
Published: April 12, 2009
Florida lawmakers want to put Citizens Property Insurance Corp. and the state’s hurricane catastrophe fund on firm financial footing. It is going to take guts and imagination.
No one in Tallahassee wants to raise property insurance rates in the middle of a recession, but the state is on the hook to cover losses should a major hurricane strike. Lawmakers finally seem to realize hoping for good weather is hardly a responsible fiscal strategy. A rate hike is.
And the Legislature should also look to alternative solutions to cure the insurance mess they have made for us.
Until property insurance programs are fiscally sound, whether public or private, every policyholder, whether insured by Citizens or a private company, will be stuck with towering assessments across most lines of insurance to cover the losses should a powerful hurricane or successive storms hit Florida.
As it is, Floridians are still paying assessments for losses from the eight hurricanes of 2004 and 2005.
It’s obvious that many people are hurting in this bad economy, but all Floridians will be shellacked if the state doesn’t put an end to what Rep. Scott Plakon called "the largest expansion of gambling" in the state’s history.
Today, the state is risking its financial health on the weather report.
Proposals in both the House and Senate would allow a gradual increase in Citizens premiums until the company is charging "actuarially sound" rates – that is, when policyholders are paying premiums at a rate necessary to cover potential claims.
Similarly, both bills call for a gradual reduction in the size of the state hurricane catastrophe fund, which backs private companies by selling them insurance to cover their excess exposure. The Cat Fund itself has about $11 billion on hand but $29 billion in exposure.
Whatever the ultimate result, any legislation enacted must include an average statewide increase in Citizens rates over the next few years.
The trouble is, even with rate increases – some as high as 20 percent under the House plan – the additional dollars generated wouldn’t cover the losses should a major hurricane hit anytime soon. Moreover, the Cat Fund would have to borrow the money to meet its obligations, and it’s unclear the bond markets would be open to it.
Bottom line: The state’s property insurance system is in deep trouble and requires an overhaul.
There are other solutions.
An intriguing proposal would allow well-capitalized insurers, even out-of-state companies, to sell policies in Florida at almost any rate they please. The reward for customers volunteering to buy this high-cost, actuarially sound coverage would be an exemption from all post-hurricane fees and assessments.
Then there’s a group of businessmen-volunteers, including former lawmaker Don Crane, who propose a plan that would establish a state hurricane fund to collect premiums rather than paying private companies or Citizens. They believe the fund could finance hurricane losses over time.
The idea deserves scrutiny. It would allow the state to share in the profits as well as the risks while developing a record to show if the approach works.
Granted, like most lawmakers we don’t like government meddling in the market. But Florida must do something. And the state already has made itself a major player in the property insurance business by assuming so much risk to keep rates low.
Yet State Farm claims it’s dropping its property insurance coverage in Florida because the company is losing $20 million a month doing business here. Other major companies are no longer writing policies. And we don’t really know if the private companies that have entered the market recently could pay all claims in the event of a storm.
The reality is there is no good solution when voters complain about rate increases and lawmakers respond with artificial solutions. Everyone must come to accept that our state, which has allowed heavy development in vulnerable coastal areas, is no longer an inexpensive place to live.
We’ll give the Legislature credit for at least confronting the property insurance tempest. But the ultimate solution – whether government-controlled or market driven – will require lawmakers to make some unpopular decisions.