Florida makes progress on property insurance reform

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April 30  |  Citizens, News  |   Danielle Szeliga

Florida officials have taken a welcome and overdue step to downsize Citizens Property Insurance Corp., the state-created insurer.

The company has seen its customer base expand to 1.5 million Floridians with more than $500 billion in exposure. Citizens is supposed to be the state’s insurer of last resort. In this case, bigger clearly is not better.

What the exposure could have meant is that a customer of a private property insurance company would have had to pay about $300 had a major storm swamped Citizens with claims. In other words, private-sector customers would have to help pay the claims of a state-run agency.

Having private insurance customers subsidize risk for the state-run agency is bad public policy. Citizens has grown too large to pay potential claims in the event a few big hurricanes hit Florida in one season.

Yet the Legislature has been in no hurry to reform Citizens and help to reinvigorate the private property insurance market. But lawmakers did take an important step in that direction in the 2012 session.

Gov. Rick Scott, who had signaled he was going to tame the beast, made some headway. The Legislature passed, and Scott signed, House Bill 1127.

Perhaps the best news about the bill is that regular assessments made on private insurance accounts will be capped at 2 percent, down from as much as 18 percent. That will encourage more people to buy property insurance in the private insurance market.

How we got here is understandable. Two nasty hurricane seasons in 2004 and 2005 — with the topper being Hurricane Katrina — caused property insurers in the Gulf Coast states to fear they were in over their heads. The claims for sinkholes in Florida also made private insurers wary.

Some insurers left, refused business or went out of business. In Florida, that left Citizens, the state’s insurer of last resort, to soak up the business.

The 2004 storm season accelerated the problem. And politics finished the job, with Citizens becoming a political issue in the 2006 gubernatorial election. In 2007, newly elected Gov. Charlie Crist and the Legislature passed a law expanding Citizens and freezing its rates. This caused a rapid growth in enrollment in Citizens. In May 2007, the Property Casualty Insurers Association of America issued a report saying that Citizens policy could lead to big deficits in paying claims if a major hurricane hit the state, and that would mean forcing insurance customers outside of Citizens to cover the costs.

The soundness of Citizens is an issue the Legislature revisits from time to time, but many warnings have gone unheeded. Indeed, in response to the May 2007 report by the insurance industry, Crist said, “They’re greedy. Let’s face it.”

Insurers’ alleged greed won’t be the first concern of Floridians if the state is hit by a few big storms. The Sunshine State has had remarkably mild hurricane seasons the last several years. That could change in just one season, and that would cost Floridians billions if Citizens runs deficits.

The Legislature and Scott should therefore keep working on reforming and shrinking Citizens. Florida residents need to be sure that Citizens can cover claims should a big storm, or several storms, hit.

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