Column: Klein’s defeat could be a disaster for Florida
Nov 12, 2010
The following article was published in the Palm Beach Post on November 12, 2010:
Klein’s defeat could be a disaster for Florida
By Randy Schultz
When U.S. Rep. Ron Klein, D-Boca Raton, lost to Allen West, Florida lost the politician who offered the best chance for property insurance relief.
During his campaign in 2006, Rep. Klein promised legislation that would create a national disaster insurance program. Once in Washington, he spoke with wonks at the nonpartisan Congressional Research Service. Out of those meetings in 2007 came the Homeowners Defense Act.
For states like Florida, which already has a backup fund to pay claims in a year when damages exceed what insurers have estimated, the cost from anything above a 1-in-100-year storm would be paid for through U.S. Treasury-underwritten bonds sold to private investors. In Florida, the peril would be hurricanes, but states could opt in for potential mega-disasters such as earthquakes, tsunamis or catastrophic fires.
To guard against worst-case hurricanes, U.S.-based, regulated property insurance companies buy reinsurance. Think of bookies making their own bets in case of a big payoff. That reinsurance – sold in the unregulated global market, with lots of involvement from hedge funds – has become the biggest factor in the price of premiums.
You may wonder why, after five calm hurricane seasons, your premiums keep rising. Blame reinsurance. According to a recent story in The Sarasota Herald-Tribune, the annual reinsurance bill for Florida companies increased from $1.4 billion in 2004 to $4 billion in 2009. Rep. Klein’s plan would greatly reduce the importance of reinsurance, and thus the cost, which would cause premiums to drop.
Also, taxpayers get protection. Rather than have the federal government raid the treasury, as happened after Hurricane Katrina ($110 billion) and send relief money that never comes back, Rep. Klein’s proposal would create an orderly system for repayment.
Though Rep. Klein got the bill through the House during his first term, it didn’t get a hearing in the Senate. Lawmakers from supposedly less-prone disaster states either didn’t understand it – John McCain didn’t, when he ran for president in 2008 – or figured that the taxpayer-subsidized flood insurance program covered the main problem in their state. Floridians pay much more into the program than they take out.
Unfortunately, Allen West also opposes a national disaster insurance program. Like Sen. McCain, he mistakenly claimed that it would “cost” $200 billion. In fact, the estimated cost is $75 million, over several years, to set up the program.
But all 25 members of the state’s current House delegation support the legislation. Which makes Rep. Tom Rooney, R-Tequesta, the logical person to sponsor it in the new Congress. He has aligned himself with the GOP leaders. District 16 got hit with three hurricanes in 2004 and Wilma in 2005.
Rep. Rooney’s press aide said in an e-mail that “we’re looking at the right way forward on that issue for the next Congress,” which could mean “looking at another approach to the issue besides the Klein bill.” Whatever the approach, Rep. Rooney must get past the free-market ideology of some Republicans. Gov.-elect Scott believes the private market can solve what the private market created by trying to dump hurricane coverage unless government allows premiums that would be prohibitively expensive for most Floridians.
Even the most committed free-enterprisers, though, can see the new reality. The Herald-Tribune reported that before he left office, former Gov. Jeb Bush lobbied his brother for a government-run reinsurance plan because Florida is “at the mercy” of offshore companies that hope for disasters. After 9/11, the government created a terrorism insurance plan for catastrophes that the private market cannot realistically cover.
Florida Insurance Commissioner Kevin McCarty hopes that “someone takes up the banner for Rep. Klein.” Mr. McCarty backs a national plan because of the “unmet catastrophic exposure,” and says “disasters that amount to billions of dollars in damage are best managed when there is a plan in place prior to the event.”
In 1996, when the Legislature passed the post-Andrew insurance reforms, the deal was supposed to be that premiums wouldn’t go way down after calm years but wouldn’t go way up after bad years. Instead, premiums went way up after 2004 and 2005, and have mostly kept going up.
This issue should not divide Democrats and Republicans. It should divide politicians who want to help Floridians from companies that want to exploit Floridians. No politician in this state should be on the wrong side of that line.