First Do No Harm
We’ve heard the phrase before in many contexts– first do no harm. Let’s hope this line of thinking applies to the 2012 legislative session, particularly as it relates to Florida’s residential property insurance market. Governor Rick Scott issued a challenge several months ago for Citizens Property Insurance Corporation to dramatically reduce its exposures. Unfortunately, its policy count has continued to grow dramatically in the meantime. Citizens has considered options available to it to address this situation, including proposals that it can implement on its own or with regulatory approval and other ideas that will require legislation. We’ll see potential legislation in the upcoming session that might try to address how Citizens does business, which currently is so competitive with the private market that it often becomes the market of first resort rather than the market of last resort.
It is important, however, that policymakers remember that the residential property market operates as a whole, and pieces of it cannot be viewed in isolation. Perhaps in future blogs I’ll address some of the reasons the private market is languishing and Citizens is growing– reasons other than Citizens’ competitive rate levels. Suffice it to say, for now, that in order for Citizens to shrink, there must be somewhere for the policies to go. We need a more vibrant private market, and we need to address the reasons the private market is unable or unwilling to allocate capital to Florida.
Now, back to the “do no harm” concept. There are proposals pending in the legislature this year to reduce the size of the Florida Hurricane Catastrophe Fund. This sounds great in theory– a large storm could tap the FHCF’s resources and result in assessments to all Floridians that could last many years. Unfortunately, the same is true for Citizens, and Citizens buys coverage from the FHCF. As long as Citizens participates in the FHCF, we’re talking about moving money from the left pocket to the right pocket. (Actually, we’re talking about which entity is levying assessments, so it’s really whether the state is going to take money from your left pocket or your right pocket).
Meanwhile, the same private insurers that we need in order to reduce the size of Citizens also purchase reinsurance from the FHCF. If we reduce the amount of coverage available to them, and increase their costs because they must buy more reinsurance in the open market, these insurers will not be able to increase their writings, and might in fact end up reducing their writings, in Florida. In the end, the state might believe it has taken steps to “get out of the insurance business in Florida,” while in fact it has done the opposite.
Whatever course policymakers choose to take, it is critical for them to see how potential changes might affect them makret as a whole rather than concentrating on narrow segments of it. These issues will warrant following throughout the legislative session.