Guest commentary: Legislative bills would give consumers real choices for home insurance
TOM GAITENS / Apollo Beach / Florida field director, FreedomWorks.org
5:00 p.m., Saturday, April 18, 2009
With the hurricane season less than two months away, Floridians face increasing risks, not just from potential storms, but from poor public policy that makes it difficult to protect their homes.
The state has watched Allstate, Nationwide, Prudential, USAA and most recently State Farm leave in the face of excessive regulation and heavy price controls. Today, the woefully underfunded, state-run Citizens Property Insurance Corp. (CPIC) has become the largest insurer in the state, with the highest risk exposure.
In the wake of a major storm, all insurance customers — not just those insured by CPIC — could face a significant state “hurricane tax.”
Florida’s market for property insurance is broken, and attempts by state elected leaders to reform the market in 2007 have only made the problem worse. The state-run CPIC has become the insurer of first resort, chasing out private insurers and private capital desperately needed to pay future hurricane claims.
At the same time, the Florida Hurricane Catastrophe Fund, another state-run program to provide reinsurance (insurance for insurers) faces a frightening shortfall that the state admits could be as high as $20 billion in the event of a catastrophic storm. The national economic slowdown has made it difficult to sell bonds to close this gap, which could shift the burden to Florida’s taxpayers.
While the Legislature’s 2007 “reforms” were touted as a measure to reduce rates, they cannot reduce the costs of a major storm. The rate freezes may have kept premiums unrealistically low on the front end, but a hidden state hurricane tax means the bargain cannot last forever.
Under state law, CPIC and the catastrophe fund can issue assessments — a hidden hurricane tax — on most insurance policyholders if the state runs out of cash to pay claims after a hurricane. These assessments impact you whether you own a home or not — they’re also levied on auto, renters, business and other kinds of insurance policies.
In fact, you’re paying this hidden hurricane tax today, whether you realize it or not. Just take a look at your insurance policies and you’ll see. But just imagine, after really big hurricane losses, these hidden hurricane taxes could amount to $1,400 a year for all Florida families — and be levied for a number of years.
With this kind of financial threat looming over people and businesses, real reforms are urgently needed. We simply must foster a more robust market for property insurance now, because the 2009 hurricane season is less than two months away.
One important reform has been introduced in both the Florida House and Senate. House Bill 1171, sponsored by Rep. Bill Proctor, R-St. Augustine, and Senate Bill 2036, sponsored by Sen. Mike Bennett, R-Bradenton, would allow consumers to choose for themselves whether they want to have their home insured by a large, well-known and financially-strong private insurer, and pay market rates for this peace of mind.
In return, under the House version of the bill, consumers who choose this type of policy would be exempt from paying any hidden hurricane taxes to CPIC in the event the state insurer goes broke and cannot pay its claims. These bills offer consumers a real choice when shopping for insurance — a policy that provides a greater degree of protection by ensuring adequate coverage, while eliminating the threat of a hidden hurricane tax.
These bills not only help consumers, but they also encourage a revitalized private insurance market for Florida, bringing private capital back into the state.
The legislation would ease some of the regulatory impediments that have led many insurers to abandon or cut back their operations in the state and is an important step towards building a functioning market for insurance in Florida. Without a viable insurance market, Florida’s growth and economic development are at risk as individuals and businesses opt to locate in states where there is a greater degree of certainty and availability in the insurance market.
Florida has been hit harder than many states by the housing downturn and subsequent job losses. A catastrophic hurricane could have a lasting impact on Florida’s economic recovery. Insurance plays a vital role that allows consumers and businesses to protect themselves from such events, and every effort should be made to develop a thriving and competitive market that attracts capital back to the state.
The Proctor and Bennett bills offer an important opportunity to build the type of homeowners’ insurance market that can provide consumers with more choices and the certainty they need.
FreedomWorks is a national organization that “advocates for free market solutions,” Gaitens says.