Panama City News-Herald
Editorial
December 16, 2011
When the Florida Legislature convenes its 2012 session in three weeks, lawmakers will have a full plate of issues, dominated by partisan political fights over redistricting and closing a $2 billion (or more) hole in the state budget.
However, those battles can’t be allowed to suck all the air out of other important business legislators must attend to. For instance, Florida again faces mounting financial challenges to its insurance system. The longer the state goes without enacting fundamental reforms, the more its residents are exposed to potentially disastrous economic consequences.
First and foremost is the need to change the state-run Citizens Property Insurance Corp., which issues policies, and the Hurricane Catastrophe Fund, which provides reinsurance to Citizens and private insurers.
Florida has benefited from an incredible stretch of good luck: No hurricane has made landfall in the state since 2005. That has helped Citizens and the CAT Fund rebuild their reserves that were depleted during the very active, highly destructive, seasons of 2004-05.
Nevertheless, both hold far more in liabilities than they do liquid assets, and it would be reckless for public officials to rely on the run of fortunate weather continuing long enough to close the gap. If a major hurricane, or multiple storms in one season, hit, the state would lack sufficient funds to pay claims.
That initially would force Florida to seek additional financing on the bond market — which after the crash of 2008 hasn’t exactly been in a generous lending mood.
If Citizens is unable to pay its claims because it can’t get sufficient reinsurance from the CAT Fund, it will be forced to levy surcharges on Citizens policyholders. If that doesn’t generate enough money, Citizens can levy assessments on all property and casualty policyholders in the state. These are de facto tax increases that would crush Florida’s economy. Just the possibility of such assessments has discouraged some private insurers from entering the Florida market.
Last week, Citizens took administrative steps to shrink its exposure. These include reducing or eliminating coverage for secondary structures like carports and for property inside a residence, stop writing policies for and phasing out coverage of buildings during construction and limiting coverage of homes in coastal areas to those valued at less than $1 million.
That’s a start, but more needs to be done legislatively. Citizens’ rates have been keep artificially low to benefit consumers, but they don’t reflect the true amount of risk it insures. Thus, not enough money has been collected to pay actual claims. The Legislature needs to make rates better reflect reality.
As for the CAT Fund, a bill sponsored by Rep. Bill Hager, R-Boca Raton, would gradually reduce the fund’s coverage by $5 billion between 2012 and 2015; increase its cash build-up by five percentage points each year until 2018; and limit its ability to levy emergency assessments.
The other major insurance issue is less catastrophic, but still represents an unnecessary drag on the state economy and insurance market.
The state requires all drivers to carry $10,000 in personal injury protection coverage, or PIP. It compensates people injured in accidents regardless of fault, and without having to sue the other driver for negligence. Unfortunately, it has spawned a massive amount of fraud, from exaggerated injuries to staged accidents. Indeed, even though accident rates have declined, PIP claims have increased.
The state estimates that direct losses from PIP fraud have risen from $1.6 billion in 2005 to $2.3 billion last year. Those insurance losses are borne by all policyholders: PIP rates from 35.5 percent to 72 percent since 2009.
The Legislature could take one more swing at reforming PIP, just as it did four years ago. But it would be better to scrap PIP altogether and return to the kind of tort system that is employed by the majority of states.
Most of those insurance reforms will require heavy political lifting, and lawmakers might not have the stomach to engage in so many bruising fights. Delaying action, though, will prove more costly in the long run.
http://www.newsherald.com/articles/fights-99123-closing-reforms.html
