News & Updates


Editorial: Higher rates, or ruin?

April 7, 2010

The “news” about hurricane insurance in Florida isn’t new. The only question is what will be done.

Florida TaxWatch this week reminded Floridians of the situation: Our state is one big hurricane (or several smaller ones) from financial disaster. With state-run Citizens Property Insurance having sopped up an unacceptable amount of risk, state taxpayers are the last source of funding to cover heavy losses.

Gov. Charlie Crist and state officials continue to use “hope” as their plan. That is, hope that no hurricanes — or at least, no big ones — hit Florida, at least until Citizens, the state’s largest property insurer, can build up enough cash to cover the risk it has taken on.

While most people don’t want to hear it, the only real answer to Florida’s insurance problem is to let rates rise enough to keep a sufficient number of private companies in the state, and to spread the risk as widely as possible.

That competition would, in theory, keep rates reasonable. The problem: The way Florida has developed has put too many homes and businesses in places where they shouldn’t be, and vulnerable to hurricane damage.

Meanwhile, with a foreclosure crisis sweeping the state there is a growing number of structures without hurricane coverage — meaning a smaller pool for insurance companies, and more uninsured damage and debris for the state to deal with in the wake of a hurricane.

The painful numbers are easy enough to parse: The $12.9 billion available to Citizens is well short of the $21 billion in payouts it could face if a big storm hits. The state’s Hurricane Catastrophe Fund, which backs up insurance companies, is $7.2 billion in the hole and could have to borrow $10 billion if that big one hits.

Question: Who is going to lend Florida, already facing billion-dollar budget shortfalls, $10 billion to recover from a hurricane? The state recovered strongly from the 2004-2005 hurricane seasons, with a big bounce in sales tax receipts from the reconstruction activity.

But with population growth slowed to a crawl, and the state’s housing market in the tank, a similar rebound might not repeat itself.