News & Updates


EDITORIAL: Dangerous ’glide path’

July 09, 2009 08:00:00 AM

The three-year freeze on Florida property insurance rates has officially lifted. But will they thaw out in time to save the state from financial ruin? 

The governing board of state-backed Citizens Property Insurance Corp. on Wednesday approved a 10-percent rate hike for approximately 1 million Citizens customers, the first increase in three years. However, the modest increase, combined with the fact that tens of thousands of Citizens customers remain eligible for lower premiums based on new rate models, means the insurer is still insolvent.

The rate freeze imposed by the Legislature prevented Citizens from raising sufficient reserves to cover its potential losses. Thus, if a major hurricane, or multiple storms, hit Florida this year, Citizens might not be able to pay all its claims. It would have to raise its rates nearly 50 percent in order to cover the amount of risk it has assumed. Gov. Charlie Crist and the Legislature, though, wanted to put Citizens on a "glide path" to solvency to ease the pain for its customers, so they approved a measure authorizing only a 10-percent increase.

However, if Citizens gets swamped with claims, all Floridians will feel the bite. Hurricane losses not covered by Citizens would be paid through assessments on all private Florida insurance polices – home, business and auto.

Citizens’ board had wanted to reject the rate cuts but abandoned the plan after it was told the state’s Office of Insurance Regulation wouldn’t approve it. The board then voted to cap any rate cut at 10 percent. Again, that’s not good enough.

That Crist would allow this Sword of Damocles to hang over the Sunshine State is particularly ironic in the wake of his vetoing legislation that might have lessened Citizens’ load. HB 1171, the Consumer Choice Act, would have allowed large, highly capitalized insurers to sell property policies at unregulated rates. Crist, on the advice of Insurance Commissioner Kevin McCarty, killed it on the grounds that it could expose policyholders to "substantial and unpredictable rate increases."

But that’s exactly what every insured Floridian is facing now with Citizens. At least with HB 1171, people would voluntarily choose to buy an unregulated policy, knowing what the potential risks were. As it stands, the state holds a gun to everyone’s head – if the Big One hits, you’ll pay a steep assessment whether you want to or not, regardless of whether you’re even a Citizens customer.

Unlike politicians who use artificially low, actuarially unsound insurance rates as a way to pander for votes, James Malone, chairman of the Citizens Board of Governors, knows how reckless a policy that is and isn’t afraid to say so. He expressed frustration Wednesday at the board’s inability to hasten Citizens’ solvency. He also recently told the Tallahassee Democrat that Crist’s veto of HB 1171 "was just flat wrong," noting: "To force the largest and strongest insurers out of the state is perhaps politically expedient, but for Citizens’ and the state of Florida’s financial health, I must agree vetoing the legislation – I’m not sure irresponsible is too strong."

But what does Crist care? He’s betting that by the time the bill comes due, he’ll be safely ensconced in Washington.

The Legislature, which overwhelmingly passed HB 1171, should override Crist’s veto.