Editorial: Rate reality and hurricanes
June 30, 2009
Gov. Charlie Crist is still gambling that Florida won’t be hit by a bad hurricane. That’s what he’s saying with last week’s veto of a bill that would have allowed some companies to sell homeowners policies for whatever they could get.
Crist said it threatened to raise the cost of insurance.
But the state’s efforts to hold down rates at all costs is defying the reality of the hurricane risk facing Florida, and setting the table for a financial catastrophe. It has led to the state assuming huge liabilities in the quasi-public Citizens Property Insurance Corp., the state’s largest insurer. Despite several quiet hurricane seasons, critics say Citizens doesn’t have sufficient reserves to handle a big storm — or worse, a series of storms.
If bad storms hit, taxpayers and the state’s other policyholders will be on the hook. Following the nasty 2004 hurricane season, holders of all homeowners policies were hit with surcharges to cover Citizen’s losses; in 2007 that was expanded to automobile policies. In 2006, the state used $700 million in unbudgeted sales tax revenue to bail Citizens out. The $700 million came from a booming reconstruction market as the state recovered from a series of bad hurricane seasons.
Depending on such a reconstruction boom again could be wishful thinking.
Advocates of the bill Crist vetoed said it would entice more companies into Florida, increasing competition and spreading out the risk. That includes State Farm, which is pulling out after state regulators rejected its request for a 47 percent rate increase. Rate-regulated companies would still offer policies, but those with enough reserves could sell at unregulated prices.
It would be an interesting experiment to see how much business the companies could win.
If they did significant business, it would take pressure off the state and other companies, and raise real questions about the wisdom — and ultimate reality — of continuing to gamble that holding rates artificially low is a sustainable policy.