Put property insurance on firm ground
The Tampa Tribune
Published: April 5, 2010
Property insurance in Florida, as Rep. Bill Proctor of St. Augustine says, is a house of cards. One major storm would blow it all away and with it the state’s economic future.
Legislation sponsored by Proctor would begin to establish a market-based foundation for the state’s property insurance.
Lawmakers and Gov. Charlie Crist should recognize its necessity.
The state’s Citizens Property Insurance Corp. and Hurricane Catastrophe Fund are gravely underfunded. Citizens has roughly $13 billion, though it’s estimated a major storm would cause at least $21 billion in residential damage to Citizens policyholders.
The Florida Hurricane Catastrophe Fund, which provides reimbursements to insurers for a portion of their catastrophic hurricane losses, has only about $6 billion on hand. A major hurricane would require an estimated $23 billion.
All ratepayers would be on the hook for any debt the state insurers incurred, meaning there would be whopping rate increases for all policyholders. These increases would dramatically boost the costs of living and doing business in Florida.
In addition, it appears that many small, private insurance companies operating in Florida are financially unsound.
A recent investigation by the Sarasota Herald-Tribune indicated the state encouraged these shaky companies to write more homeowners policies as major insurers pulled out of the state when regulators refused to approve rate increases. So the ability of many private firms to pay claims is in question.
We are in this mess because the state has sought to maintain artificially low rates, rather than let the market reflect a property’s true risk.
The state was justified in protecting policyholders from abrupt massive rate hikes. But maintaining actuarially unsound rates is putting the state’s finances and its residents’ property at risk.
Proctor’s House Bill 447 (there is a companion bill in the Senate) offers a sensible way to begin to put market forces to work.
It would allow private homeowners to select more expensive coverage, free from regulation, from a well-capitalized company that consumers could trust to respond quickly in a disaster and pay claims.
This would offer an alternative to Citizens or the undercapitalized firms.
It would be strictly voluntary. Ratepayers would make the decision whether to pay more for the assurance the carrier could cover their losses.
Last year, Crist vetoed a similar measure, insisting it did not protect consumers or ensure that the insurers would not leave the state.
But the current situation puts homeowners in far more jeopardy.
Former Gov. Jeb Bush, who managed the state astutely as it suffered a series of hurricanes in 2004-2005, supports Proctor’s plan.
“These types of ideas to fortify the insurance market I think are good ideas,” he told The Associated Press.
The Legislature should pass the reform and shore up the state’s property insurance industry. And this time Crist should heed the advice of his predecessor and sign it into law.