Alan Daley has an op-ed that highlights the urgency for insurance reform in Florida.  The piece is available online in The Tallahassee Democrat.


The Calm before the Financial Storm

Florida has a government-run entity called Citizens Property Insurance Corporation that was created to insure consumers and small businesses who cannot find an insurer offering insurance for their homes, garages, sheds, mobile homes and household contents. For those able to find insurance, Florida has about one thousand private property and casualty companies that insure the same homes, garages, sheds, mobile homes and household contents.

One difference between Citizens and private insurance is the pricing. Private insurance firms calculate prices based on the actuarial risks for payouts and administrative costs. Citizens does the same calculation, but then it reduces prices by the value of a subsidy that, if a storm comes, it could extract from other consumers and small businesses, including those insured by private insurance companies.

In effect, government forces some consumers to pay more than they should and it subsidizes other consumers who did nothing to earn it. In many cases, it serves as a subsidy for the more wealthy coastal property owners –including many out-of-state and international homebuyers, that latter of rich nearly are 90% likely to pay cash to buy their home.  Isn’t it interesting how more wealthy homebuyers can afford to buy a home without a mortgage but need subsidized premiums to insure their home?

Citizens had become a horrible burden on Floridians by the time it grew to 1.5 million policies in 2011. To relieve that financial pressure, Citizens agreed to shrink its policy count down to 650,000 by transferring policies to the many private sector insurance companies willing to cover consumers (so called depopulation).  Today, Citizens sits at 730,000 policies, but still leaving consumers stuck paying subsidies for its financial shortfalls.

Over the years, Citizens has gambled on Florida’s Hurricane Catastrophe Fund to bailout its losses in the event of a major storm. In the 9 years since the last serious storm, the Cat Fund has managed to grow. As an extra buffer against claims that exceed the Catastrophe Fund, Citizens bought reinsurance of $3 billion at a lower cost than expected.

Putting that in perspective provides, the probably of going for 9 years without a storm, according a report from the Department of Atmospheric  Science at the University of Colorado, has been predicted as one in 5,200 years. Rather than wait for that luck to repeat, now is the time to prepare for the storm and for policymakers to use financial wisdom by not gambling with catastrophic risks.

The remarkable hiatus in Florida-bound hurricanes, progress in shrinking its policy count, the availability of cheap reinsurance from private companies, and a thriving conventional insurance market have finally set the stage for Citizens to stop charging consumers for hurricanes from 2004 and 2005. During the last nine years, all Floridians have been assessed billions in hurricane taxes on their insurance bills.  Now is the time for Citizens to shift its rates closer to actuarially sound levels that reflect risk. That means that the role of Citizens should go from being the largest insurer in the state to its original stated purpose as being the insurer of last resort.

In addition, it should mean that the Cat fund rely more heavily on private capital, instead of concentrating storm risks and recovery costs in the state and on its homeowners.  It is time to finish the depopulation and push these high catastrophic risks and costs to insurers and reinsurers.

Based on history, consumers shouldn’t expect better service and fewer complaints from a government insurer.  Downsizing Citizens, while encouraging private capital and competition may not be what Citizens or some politicians are considering, but it is what consumers want and deserve from their government.

Alan Daley, who lives in Florida, writes for The American Consumer Institute Center for Citizen Research, a nonprofit educational and research organization. For more information, visit