Florida’s Citizens Property Insurance Corp. was created to cure a shortage of property insurance available to homeowners. Curing a shortage was a noble goal, but the cure has turned malignant.
Citizens adopted a pricing strategy that engaged in below-cost, predatory pricing, pushing away competing insurers and seizing a dominant share of the market in Florida’s residential coastal properties. If Citizens used normal actuarial practice to set its prices in line with risk exposure, other insurers would be successful in price-competition and there would be no garish subsidies from Citizens to coastal areas.
A downside to Citizens’ dominant share is that it could face a dominant share of catastrophic damage claims. To protect it from claims, Citizens was granted sovereign power to tax competing insurers, shifting its losses onto Florida consumers who had chosen other insurers. In modern-day serfdom, Florida’s “non-Citizens” insured consumers must handle 100 percent of their own losses, plus pay for Citizens’ shortcomings.
While in a few Florida counties as many as 30 percent of homes are vacant, the average is 18 percent of homes vacant. For vacation properties the more salient measure is “unoccupied” homes. An “unoccupied home” means not owner-occupied, nor for sale, neither rented, nor for rent. These are generally owned by more wealthy individuals and tend to cluster near beaches — for example, in southeast Florida, such as on Fisher Island and along the Keys where there are often more unoccupied homes than occupied homes.
A National Association of Realtors (NAR) study for 2011 found that the average income of vacation home buyers was substantially higher than the income of a primary residence buyers or investment property buyers, and that more than 42 percent of vacation home buyers live more than 500 miles away, that is outside Florida.
In 2012, the NAR’s study found that the median price for vacation homes was $121,300 and that 42 percent of vacation home purchases were made in cash — another indicator of wealth. NAR’s 2011 “Profile of International Home Buying Activity” reveals that Florida attracted 31 percent of all international transactions for U.S. residential real estate, and 62 percent of those paid “all cash.” The Miami area drew the majority of Florida’s residences sold to foreign buyers.
The outrage of Floridians’ forced subsidies to Citizens underpricing of coastal property insurance is doubly bitter because many of the coastal properties are vacant second homes owned by out-of-state or out-of-country vacationers. Current insurance law in Florida callously lines up Floridians to be plucked to cover Citizens pricing-folly, often for the benefit of wealthy out-of-staters. That exceeds any sane gesture of goodwill to tourists, and it makes insurance less affordable for consumers who actually live in the state.
Published in the Tallahassee Democrat on Jan. 18, 2013, Written by Alan Daley, see