News-Press.com
July 14, 2011
Citizens Property Insurance Corp., Florida’s largest property insurer, is overexposed, and adding thousands of policies a week.
That needs to change before a catastrophic hurricane overwhelms its reserves and forces the Florida taxpayer to bail out the state-backed insurer.
A proposal by Citizens’ CEO Jim Malone of Naples to shed about one-third of the company’s policies and let the private industry cover them will cause rates to go up – maybe way up – for the dropped policyholders, but it is worth careful consideration.
Malone estimates that up to 900,000 of Citizens policies are probably uninsurable in the private market because they cover older homes and property close to the coast. The remaining 500,000, he thinks, could be sold to private insurers.
Citizens, created under state auspices as an insurer of last resort for property that private insurers would not cover, charges unrealistically low premiums.
The result is that Citizens has about $11 billion in cash and Florida Hurricane Catastrophe Fund resources. State experts say a 1-in-100 year storm – the storm and damage that have a 1 percent chance of happening in any year – would hit Citizens alone with $22 billion in claims. Several smaller storms could also add up to more than the company has in reserve, according to Citizens spokeswoman Christine Ashburn.
That sets the stage for a financial disaster to follow on the heels of a catastrophic hurricane, as taxpayers bail out the government-backed insurer and its policyholders endure special assessments to cover damage claims.
All Florida policyholders are still paying extra to cover Citizens’ losses from the stormy years of 2004 and 2005, says the Insurance Information Institute, an industry body. The Legislature took steps this year to allow property insurance rates to increase, hoping to reduce Citizens’ exposure. But Citizens was not allowed to shed policies. Partial privatization is a logical next step.
But getting property adequately covered at affordable prices in a high-risk state like Florida is a difficult balance to strike.
Rates need to be high enough to attract insurance capital, and generate competition from numerous companies, without being so high as to drive property owners out of the market – or back into the arms of Citizens.
We cannot expect property insurance in Florida to be cheap. That was the bogus promise of ex-Gov. Charlie Crist, who blocked efforts to raise rates, only to see insurers drop policyholders and flee the state. But if home- and business-owners find insurance too expensive or simply unavailable, and decide to take their chances without protection, that, too sets the stage for a fiscal catastrophe if a big storm causes billions in damages.
Lawmakers need to hear from us on this.
It’s a long way to the next regular session of the Legislature, with the controversial 10-year redrawing of legislative and congressional district boundaries. And, 2012 is an election year. But time has to be found to deal with an issue that can cripple Florida’s growth if property insurance rates are too high or insurance unavailable, and could cripple Florida’s recovery from a storm if there is not enough money for rebuilding.
