My Word: State not ready for a hurricane
April 26, 2009
Florida is financially unprepared for a hurricane. In a state with $2 trillion in property exposure, state-run Citizens Property Insurance Corp. has become Florida’s largest residential property insurer, charging its more than 1 million policyholders actuarially unsound rates.
Meanwhile, our main financial backstop, the Florida Hurricane Catastrophe Fund, faces a $12 billion shortfall should it have to pay hurricane claims, and, even worse, two key financial-rating agencies are threatening to downgrade the ratings of numerous insurance companies if CAT Fund exposure isn’t reduced. If that happens, millions of homeowners might have insurance policies that do not qualify for their mortgages to be sold.
This is in addition to the nearly $5 billion that Floridians already are paying in hidden taxes, or insurance assessments, since 2005. Should a major storm or series of storms hit, that hidden tax bill might reach an annual average of $1,440 or more for several years.
Sen. Garrett Richter, R-Naples, and Rep. Bryan Nelson, R-Orlando, have introduced property-insurance-reform bills (SB 1950 and HB 1495) that address these problems. This legislation is consistent with the recommendations of The Florida Council of 100 and the Florida Chamber of Commerce in our report, "Into the Storm: Framing Florida’s Property Insurance Crisis," an approach to property insurance reform based on four principles:
Risk-determined rates. We must let risk determine rates, whether it’s government or the private sector leading the way. Having low-risk policyholders subsidize high-risk policyholders isn’t fair or economically sound, and it doesn’t change the high-risk behavior. Actuarially sound rates must be implemented, and we must effectively price risks such as geographical location, age of structure and construction.
Competitive markets. Risk-based rates would help bring competitive insurers to the state, and competition among companies should eventually help decrease those rates.
Increased mitigation. The best way to deal with hurricane loss is to prevent it. Existing structures can be retrofitted.
Federal backstop. We must push for a federal backstop. Florida deserves to receive its fair share of federal dollars for critical needs. Using federal loans or a line of credit to provide crucial funds to recover from a catastrophic storm should be considered as a proper balance of public and market policy.
With hurricane season coming, Florida must be prepared to handle a potential financial catastrophe. Urge your legislators to support SB 1950 and HB 1495.
Mark Wilson is president and CEO of the Florida Chamber of Commerce.