Storm warning: Prop up insurance
OUR OPINION: Major hurricane could still wipe out Florida financially
Most Floridians haven’t had much reason to worry about windstorm insurance lately — out of sight, out of mind. But the mild hurricane season of 2009 — thus far — should not conceal the fact that the system for insuring homes and businesses against disaster remains badly flawed.
The disappointing numbers disclosed by State Insurance Commissioner Kevin McCarty last week offer a sobering view of the weakness of the state insurance industry. A financial catastrophe could ensue when a major hurricane hits one of the more developed areas along Florida’s exposed coastline.
Not crying wolf
According to Mr. McCarty, 84 companies writing hurricane and other property insurance coverage recorded underwriting gains in the first six months of the year while 102 recorded losses. More companies lost money from the insurance side of the business (as opposed to investments and so forth) than the companies that made money, and that suggests the rate structure needs to be adjusted to raise more revenue.
Commissioner McCarty doesn’t cry wolf. He has not hestitated to take on the insurance industry when he thought consumers were being scalped. His views on the weakness of the private insurance market, as expressed to the Florida Cabinet, deserve to be taken seriously. They are a warning that, forasmuch as we hate to say it, rates have to be raised.
As the cover story in The Miami Herald’s Business Monday section outlined, the capacities of the state’s catastrophe fund and Citizens Property Insurance Corp., the state-backed insurer of last resort, are stretched to the limit. They may burst if a big hurricane hits Miami.
Insufficient cash on hand
Neither Citizens nor the CAT fund has sufficient cash on hand — nor enough borrowing power — to meet the huge outlays required by the proverbial one-in-100-years storm. The result would be harsh rates on Florida homeowners to make up for the shortfall.
The picture isn’t completely grim. Since the start of 2008, a record number of policies — 500,000 — have been taken out of Citizens by newly formed insurance companies. That’s a good sign, but Citizens remains the largest state-run insurance pool in the country.
Mr. McCarty conceded that raising rates merely addresses the symptom. The real problems are structural. Florida needs to build stronger CAT fund reserves and restore the program that pays for windstorm mitigation costs. A regional or national CAT fund for windstorm damage also makes sense.
Dealing with core problems that eliminate the need for the endless spiral of higher rates will require legislative action on the state and national level. The time to start is now, before the big hurricane arrives.