Our Opinion: Insurance chaos
We’re still in a stormy state of affairs
November 10, 2009
As Ida moved along in the Gulf yesterday, being reduced from possible hurricane status to a tropical storm or maybe just a big storm, Florida’s run of political as well as climatological good luck had apparently, mercifully, been extended.
In terms of property insurance, homeowners have been living in something of a fool’s paradise in Florida for several years. There’s little evidence that, if a major hurricane strikes, property owners would be sufficiently covered, given the anticipated withdrawal of State Farm from the market — thanks to a political showdown two years ago with Gov. Charlie Crist, who said the insurance giant’s rate request was unreasonable.
But those 770,000 customers are not necessarily ensured of coverage in a market where incoming companies haven’t shown much interest in mom-and-pop properties. These largely unregulated “surplus lines” specialize in high-risk, commercial, waterfront properties instead.
About 40 percent of the companies offering insurance have been experiencing underwriting losses — paying out more than they collect in premiums. Though that is improving a little given a couple of hurricane-free years, other companies are reluctant to come into Florida unless they can charge actuarially sound rates.
Meanwhile, all property owners — including businesses, religious institutions, auto insurance policy holders, local governments, school boards and even nonprofits like the United Way — are paying premiums that would help cover losses on high-risk coastal properties through a state catastrophe fund.
While some efforts have been made to require coastal property owners to “harden” their properties, success has been minimal at best. There should be no choice for coastal property owners: They should participate in storm-mitigation programs (My Safe Florida Home includes programs for low-income folks, too) or go without insurance.
As environmental groups remind us, building codes on coastal properties, setback lines and so forth, are inadequately enforced, meaning more subsidizing by noncoastal property owners.
So far, nothing is in place to begin to level the playing field.
Nor is there much stability in our vulnerable coastal state when even the so-called “insurer of last resort,” Citizens Property Insurance Corp., is perpetually underfunded. If a catastrophic storm hits, depending on how high the population area it strikes, Florida’s economy would be devastated.
Some property insurance reform efforts were adopted last year in the Legislature — but then vetoed by Gov. Charlie Crist, who didn’t want to rock any voter’s boat with reality insurance premiums on coastal properties. Lawmakers do need to take up that Consumer Choice Act again this year, with the goal of bringing competition into the state instead of scaring it off.
Florida needs to keep Citizens from expanding, especially into the commercial markets; it needs to enforce hardening; it needs to establish a firm timeline for getting out of the subsidizing of high-risk coastal properties by low-risk property owners, be they individuals or schools, churches, nonprofits or small businesses.
“We think Florida’s experiment in the insurance market is going to end very badly,” James Massie, an expert in the reinsurance industry, told the editorial board last week. “Florida is the poster boy for what not to do.”
If we get through this hurricane season unscathed, the problems aren’t solved. We are still a vulnerable peninsula, and the urgency and necessity of stabilizing our property insurance system hasn’t gone away either.