Editorial Makes Key Points About Citizens Reform
The Tallahassee Democrat’s editorial this morning entitled “Controlling Citizens” makes some important points about the current state of the supposed residual market. The theme of the editorial is that policymakers should make Citizens Property Insurance Corporation an insurer of “last resort” again. The editorial points out that 23 percent of Florida properties are insured by Citizens. Due to Citizens’ artificially low rates, this presents the possibility of significant assessments not just for the 23% of policyholders who are in Citizens but also the 77% who are not. The eventual assessments that will arise from the state’s continuing decision to undercharge for property insurance will affect homeowners throughout Florida, as well as small businesses and many others. This is because when the assessments become necessary, they will be levied on most lines of property and casualty insurance and therefore will affect business policies, auto policies and many other types of risks. This will be a difficult burden to bear for small business owners who are among the 77% who are not benefitting from the state’s decision to undercharge for the product.
The editorial suggests that Citizens’ low rates actually encourage continued develop in areas where perhaps it should not take place— should the government through price subsidies encourage coastal development where the economics otherwise would not work? The Tallahassee Democrat pointed to suggestions made by Associated Industries of Florida as possible solutions. These include encouraging the transfer of risk to the private market, requiring that Citizens not compete with private insurers, prohibiting Citizens from insuring further development in vulnerable coastal areas, and gradually reducing the size of the FHCF.
As for the last point, we all should remember that Citizens benefits from a little under half of the Florida Hurricane Catastrophe Fund’s capacity. Thus, to the extent Florida suffers storms that might necessitate assessments, we really have an issue of whether we’re taking money from the left pocket or the right pocket as it relates to Citizens– if Citizens losses contribute to triggering FHCF assessments, the assessment bases are fairly similar and the assessments really are attributable to a common source.
As policymakers consider whether to reform Citizens Property Insurance Corporation in the upcoming session, it is important to remember that the burdens of the current situation will be borne by Floridians statewide, the substantial majority of whom are not beneficiaries of past decisions to subsidize insurance rates.