Oyster Radio News
Chris Barry
December 5, 2011
TALLAHASSEE — An analysis of Florida’s hurricane insurance system clearly shows that reforms are needed to better protect those who reside in Florida from risk of severe financial pressure from hurricane losses, according to Reducing the Concentration of Risk in Florida’s Property Insurance System, a report released today by Florida TaxWatch, the nonpartisan, nonprofit, research institute and government watchdog. According to this analysis, combined with the report Risk & Reform, released by Florida TaxWatch in November, the two state-backed components of the system, Citizens Property Insurance Corporation (CPIC) and the Florida Hurricane Catastrophe Fund (FHCF), are underfunded and overexposed.
“The current insurance system puts taxpayers on the hook for potentially billions in assessments, while providing little assurance that their claims will be paid in the event of a catastrophic hurricane or series of hurricanes,” said Dominic M. Calabro, Florida TaxWatch President and CEO. “This independent analysis highlights some of the problems with CPIC as the largest component of the system, recommends needed reforms, and analyzes proposed solutions.
One of the tenets of insurance is to diversify risk so that losses are not correlated with each other; however, the financial risk of damage from a hurricane hitting Florida is largely concentrated within CPIC rather than being spread around the country and the globe. As of November 2011, CPIC had 1.47 million policies extending approximately $512.8 billion of property coverage to Floridians. This is a substantial number of policies, a large percentage of Florida’s total residential exposure, and 99.9 percent of the $512.8 billion in exposure is held within the state, compounding the instability within CPIC.
In addition to the concern created by CPIC concentrating financial exposure within Florida’s borders, this Florida TaxWatch analysis identifies several other problems originating from CPIC that adversely affect the rest of Florida’s property insurance system and taxpayers: the eligibility requirements to obtain a CPIC policy have been lowered enabling significant growth in policy numbers, making CPIC no longer the “insurer of last resort”; the concentration of exposure in high-risk areas of the state places financial liability on the remainder of the state’s policyholders to pay for hurricane damages; CPIC’s artificially low rates and ratio of the amount of exposure held within CPIC to cash-on-hand to pay claims being nearly 100 to 1; and the Glide Path implemented in January 2010, intended to gradually make CPIC rates actuarially sound, is insufficient to do so in a reasonable period of time.
CPIC influences the Florida economy even in years without hurricanes, because of the potential of assessments which likely dampens capital investment in the state. Furthermore, this dissuades insurance companies from entering the Florida insurance market, making the market even less competitive.
“Any proposals to fix this situation should aim to have CPIC set market-oriented rates, restore CPIC to truly being the “insurer of last resort” as it was intended, and include a quantitative analysis to ensure the proper protection of Florida taxpayers,” said Calabro.
Click here to view this report: Reducing the Concentration of Risk
Click here to view the Florida TaxWatch November report on the hurricane insurance system as a whole: Risk & Reform
This report continues our ongoing look at Florida’s insurance systems. For previous research on this topic, please see the Florida TaxWatch April 2010 Special Report, “Florida’s Financial Exposure from Its ‘Self Insurance’ Programs,” available here.
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