Citizens Insurance: Its Policies Need a Dowry

Being an insurer is a delight when you don’t have to pay out on claims, but it’s a nightmare when the claims total far more that you collect in premiums.  So why did Florida consumers ask to roll the dice as insurers?  Was life in the hammock sipping a Mai Tai too boring?  Oh wait, Floridians aren’t tipsy hammock dwellers and we weren’t asked if we want to be in the insurance game.  

Citizens Property Insurance is our publicly owned casualty insurer for Florida properties exposed to high water and high wind.  Others compete in that same line of business, but they charge more for the same coverage.  Could it be that Citizens is righteous and the others are just rapacious?  The “other insurers” actuarial experience shows they will lose money at lower premiums.  Citizens’ experience confirms this because Citizens charges lower premiums and loses money

Citizens’ lower premiums are a subsidy to the properties at highest risk for damage and the lower premiums incent owners of high risk properties to choose Citizens.  The insurers who are determined to not lose money are crowded out by Citizens’ pricing.  When Citizens incurs an excessive loss, it can lay an assessment on its competitors, who in turn pass that levy on to their customers.  Floridians who are not Citizens’ customers are forced to pick up the tab for Citizens’ losses.   

Finally some senior bureaucrats and savvy legislators are seeing the light.  They are urging Citizens to radically downsize itself before a tsunami of Citizens’ losses drowns innocent Floridians.  Citizens is willing to play along by selling off tranches of its policy portfolio to other insurers, but the portfolio tranches are such unattractive losers (premiums are less than expected losses) that other insurers are demanding embarrassingly high dowries.  The dowries are dressed up as loans that are forgiven in sync with the losses incurred by the portfolio tranches over the next 5 years. 

This is irresistible mud for politicians willing to pretend that that it was necessary for government to own an insurer, that compensatory pricing was unnecessary, and that any private sector enterprise guided by profit-making deserves demagoguery.

Alan Daley is a retired businessman living in Florida and following public policy from a consumer’s perspective.

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