News & Updates


EDITORIAL: Cloudy forecast

April 07, 2010 08:00:00 AM

It’s been nearly five years since a hurricane made landfall in Florida. Despite that stretch of good fortune, the state’s property insurance market remains as tenuous as a Charlie Sheen marriage.

A report released Monday by Florida TaxWatch warned that the state remains one major hurricane away from financial ruin. Years of government keeping insurance rates artificially low might have made coverage affordable to more property owners, but at the cost of preventing public and private insurers from accumulating sufficient reserves to cover potential losses.

State-backed Citizens Property Insurance, Florida’s largest residential property insurer, is actuarially unsound. The Florida Hurricane Catastrophe Fund, the state-run agency that reimburses to insurers for a portion of their hurricane losses, is facing a potential shortfall of $7 billion between its liquid assets and its liabilities.

If a major hurricane struck this year, or the state suffered multiple hits as it did in 2004-05, Citizens and the Cat Fund would be under water. To meet its insurance obligations, Florida would be forced to impose punitive “assessments” — read: taxes — on every insurance policy in the state to raise funds. As TaxWatch points out, the threat of heavy assessments discourages economic growth. Businesses will be less likely to expand or relocate here if they fear getting hammered by hurricane taxes.

The state still would have to borrow tens of billions of dollars to pay off the insurance debt — more than any state has ever borrowed. The interest payments alone would be fiscally crippling for years, making the budget crunches during the current economic recession look like elementary school math homework.

Meanwhile, the private insurance market has failed to take the state off the hook. State officials have pointed to the emergence in recent years of several new insurance companies to rebuild the market after larger insurers fled the state. But it turns out that many of those startups lack the capital to withstand even a modest hurricane. Last year, without a single storm striking the state, six of these insurers went belly up, and officials now admit that more could follow suit this year even if it remains storm-free.

An investigation by the Sarasota Herald-Tribune last month found that one in three privately insured Florida homeowners relies on insurers that exhibit one or more signs of financial risk. More than 100,000 homeowners rely on companies barely capable of paying for house fires, let alone hurricanes. During the 2009 hurricane season, at least 38,000 Florida homes were insured by companies state regulators knew would fail.

In this legislative session, the state must take steps to allow Citizens and the Cat Fund to become actuarially sound by bolstering their reserves and limiting their exposure. Furthermore, it must enact policies that strengthen the private market so it can assume the load from Citizens.  

TaxWatch sensibly recommends prohibiting Citizens from writing new policies in high-risk coastal areas and setting up more aggressive programs to encourage Floridians to strengthen their homes so as to reduce storm damage claims.

Gov. Charlie Crist last year vetoed legislation that would give consumers a choice of buying policies with regulated or unregulated rates from well-capitalized companies. Lawmakers should send him another version of the bill, hoping he’ll see the light. Floridians are in far worse jeopardy from an underfunded insurance system than from a competitive market.