Tampa Bay Online
by Steve Pociask
March 10, 2011
High coastal exposure to hurricanes is one reason Florida has the highest property-insurance rates in the country. That’s no surprise, but it’s only part of the reason.
Fifteen years ago, Florida’s homeowner insurance premiums averaged 30 percent higher than the U.S. average, but today Floridians are paying nearly 90 percent more, according to data from the National Association of Insurance Commissioners. The disproportionate increase in premiums is not explained by insurer greed or by recent catastrophic events.
Indeed, the average insurer in Florida has lost money over the past decade, despite the fact that there has not been a major hurricane in nearly six years. Why are Floridians paying so much?
Florida is saddled by a host of public policies that were supposedly implemented to protect consumers but actually benefit trial lawyers, insurance frauds, insurance adjustors, risky drivers and millionaires who live on the coast, among other special interests. These policies create extra costs for insurers, who simply pass these costs along to consumers in the form of higher property-insurance premiums. This means that consumers lose.
Sinkholes are a problem, and consumers need protection. But the system is rife with corruption that benefits trial attorneys, claims adjustors and frauds. For example, one claims adjustor has sent out notices promising Melbourne Beach residents “large insurance settlements” if they have cracks in pavements and walls.
Of course, it would be rare to find a home without some settlement cracks in pavements and walls. The process is designed to milk insurers of improper claims, leaving claims adjustors to enrich themselves.
Ironically, there is no requirement that consumers ever make the repairs they are paid for, padding the base for another future claim. While the money seems free, other consumers are on the hook to pay for it.
The system is set up to subsidize coastal properties, but the result increases everyone’s costs as the subsidies lead to more property being put at risk. Adjustors are paid more if they can justify higher property losses, and consumers, when paid, are not required to make a repair. This encourages excessive payments and multiple claims for the same loss. You pay for that, too.
A recent study by the American Consumer Institute found that regulations were a major contributor to high consumer property insurance prices. In particular, the study found that price regulation eventually contributed to higher consumer prices by pushing the most financially stable and well-capitalized insurers out of the market and leaving surplus-starved firms behind.
Those regulations have led to a greater need to raise prices and a greater incidence of insolvencies — exactly what regulation is supposed to prevent. This means that consumers will pay more but get less.
Politicians and regulators defend these provisions as being in the consumers’ interest. In reality, Florida consumers are paying disproportionately higher property insurance premiums in order to benefit political special-interest groups and fraud. It’s just a big consumer scam, and it needs to stop.
Steve Pociask is president of the American Consumer Institute Center for Citizen Research in Tallahassee.
