What a difference a few years can make. Recent changes to insurance public policies have left homeowners better protected and given the state greater financial stability. Yet, there is still room for improvements, including changes that could dramatically reduce premiums for consumers.
Over a decade ago, Florida property insurance market could have been called dysfunctional. Regulatory price controls pushed private insurance away from the coast and some large insurers left the state. In its place, Citizens, the state government-run insurer of last resort, took up the slack growing to nearly 25%. Because it was pricing its premiums below market, Citizens got very big, but it did could not accumulate the capital necessary to pay claims if a major hurricane hit the coast. Citizens’ backup plan, the Florida Hurricane Catastrophic Fund was also undercapitalized. The state was one or two storms away from financial disaster.
In 2012, Citizens had 1.5 million homeowner policies with most priced below risk – essentially a subsidized price. But, the subsidies were not targeted to help lower income Floridians who were unable to afford insurance. Instead, it also subsidized wealthy coastal homeowners, many of whom did not even live in the state. Data covering August of 2013 showed that subsidized policies were being sold to homeowners living in Monaco, Liechtenstein, Luxembourg, China, Saudi Arabia and elsewhere. Floridians were effectively subsidizing 27,000 homeowners living in New York and 20,000 Canadian homeowners, 90% of whom paid cash for their second home. If you pay cash for your home, you should be able to pay to insure it.
Today, Citizens has downsized to less than 500,000 policies, and the private market is returning to bear the risk. Until Hurricane Mathew, there was a long string of years without a major hurricane hitting the coast, which provided the Florida Hurricane Catastrophe Fund time to build up its reserves. In addition, a wise investment was made into the Cat Fund of a billion dollars in additional reinsurance – effectively buying its own insurance instead of relying on taxpayers and other homeowners to bail it out. That wise decision will mean the brunt of Hurricane Matthew will be paid for by private capital, keeping additional capital in reserve for next time.
In just a few years, the state is in much better shape, but more work remains. Depopulation must continue, including the end of subsidies for wealthy out-of-state homeowners. For example, while Citizens’ depopulation reduced policies of in-state homeowners by 64%, policies of out-of-state homeowners fell by only 45%, according to Citizen data for August 2016. Getting these policies priced closer to risk is the answer.
Equally important, the state needs to continue buying reinsurance and should consider expanding this broader coverage. Reinsurance is key to protecting taxpayers and other insurance consumers.
The biggest need for reform is in assignment of benefits scams employed by shady contractors and dishonest attorneys that bilk insurers and push these costs into homeowner premiums. One-way attorney’s fees were supposed to protect consumers, but instead line the pockets of a corrupt cabal. Reform would not only end this corruption, it would protect the reputation of honest contractors and lead to a significant reduction in homeowner premiums. The policymakers should reintroduce legislation to fix this abuse.
Let’s give credit where credit is due. Policymakers have improved the state’s financial stability with respect to insurance, and Citizens depopulation has been successful, so far. However, more reforms are needed, particularly as they pertain to stamping out fraud and corruption that drives up insurance premiums.
Also available in the Pensacola News Journal at Viewpoint: Hats off to Citizens, but reform needed