The Florida Times Union
Editorial
November 30, 2011
Are you feeling lucky?
No hurricane has made landfall on the Sunshine State in recent years, despite having active hurricane seasons.
Florida continues to gamble on a foolish wager that it doesn’t need to pay for insurance sufficient to cover damages from even one big hurricane, let alone several.
If luck runs out, those paying in the form of hefty after-the-fact assessments will include Jacksonville-area homeowners, even if the damage is elsewhere.
The Legislature created the problem and now needs to fix it by restoring responsible funding of property insurance. The paucity of major storm damage in recent years makes it easier for politicians to continue ignoring the problem.
This year’s 18 named storms made last year the sixth-busiest Atlantic hurricane season since record keeping began in 1851.
But this marked the sixth consecutive year the U.S. has avoided a hurricane making landfall at a Category 3 level or higher.
When luck runs out, Florida will be faced with some big numbers. Think in terms of billions of dollars in damages charged to taxpayers and policy holders. Imagine what this will do to the state’s economy.
The Legislature has manipulated property insurance in recent years through two quasi-public entities, shifting liability from private insurers to Florida’s residents and discouraging private competition in the state’s insurance market. The result is undue risk of economic catastrophe in the event of a single hurricane the size of Andrew, which struck in 1992.
An idea gone wild
Citizens Property Insurance Corporation, originally intended as an insurer of last resort, now has 1.5 million policies and covers 25 percent of residential property in the state. Its growth has been fueled by artificially low rates mandated by the Legislature.
Half of its policies are in five high-risk coastal counties in South Florida.
The Florida Hurricane Catastrophe Fund, a reinsurance entity that backs policies written by Citizens, also provides reinsurance for private insurers, further increasing the state’s exposure.
For perspective, consider that Andrew, a Category 5 hurricane, stuck a fairly narrow path in Florida. But it’s impact shocked the state and insurers.
Katrina cost $47 billion across several states in 2005. Four hurricanes that swept through Florida in 2004 did more than $25 billion in insured damages.
Raymond James and Associates, which advises both Citizens and the Cat Fund, projected that in the event of a single 100-year hurricane, the cash and reserves of Citizens and the Cat Fund could be depleted, forcing the state to borrow $18.6 billion through bonding to pay the costs — if the markets would lend that much. That’s based on a 100-year hurricane cost of $55.7 billion, a Cat Fund estimate cited in a recent Florida TaxWatch analysis.
If the worst happens
A Category 4 hurricane making a direct hit on Miami or Tampa Bay could fit the definition of a 100-year hurricane.
The $18.6 billion in bonds would be repaid through assessments, with the average Citizen policyholder being hit for $9,400 and the non-Citizens policyholder being assessed $7,100, according to a scenario outlined by Brent Winans, a Delray Beach risk-management consultant. Both could be paid over 30 years, with first-year installments of $1,200 and $360, respectively, and payments of $270 and $230, respectively, in subsequent years.
Incidentally, less than 1.5 percent of Citizens’ policies are written in Duval, Clay, St. Johns and Nassau counties, but non-Citizens policyholders here would be hit with the same assessments as those in South Florida who have benefitted most in the short term by underfunded reserves.
Floridians who live inland and in North Florida would be subsidizing coastal development in South Florida.
TaxWatch and others have suggested sensible reforms that would put the state on better footing.
All cost money. All would increase premiums for most policy holders, and many in high-risk areas would have to pay much more.
The Legislature must acknowledge that Florida can’t be lucky forever and address this property insurance problem.
Failure to do so would represent an abdication of responsibility with potentially catastrophic cost consequences for taxpayers and policyholders.
http://jacksonville.com/opinion/editorials/2011-11-30/story/florida-relying-luck-hurricanes
