Editorial: Citizens Property Insurance–The Florida myth
May 18, 2012
The following article was published in The Pensacola News Journal on May 18, 2012:
Editorial: Citizens: The Florida Myth
A few years ago Alex Sink, then Florida’s Chief Financial Officer, mentioned a trip she had taken to South Florida. The trip was taken as recession storm clouds gathered, but Sink noticed a ray of sunshine; upon arriving in Miami she saw several high-rise condo buildings under construction.
“But then,’’ she said, “I realized all the new condo owners would have to be insured by Citizens.’’
And that, she knew, was putting the state farther onto a very sharp, very expensive hook in case of storm damage.
The story of Citizens Property Insurance Corp. is a microcosm of the Florida myth. It is the myth that growth pays for itself in Florida and will always pay for itself. It is the myth that the dangers of building and living along the coast can be mitigated, if not eliminated. It’s the reality of Florida in 2012 when the bill, for Citizens and for Florida, has come due.
Citizens began in 2002, 10 years after the horror of Hurricane Andrew, which flattened Homestead, near Miami. The idea was to be the “insurance carrier of last resort’’ for people. Instead, it has become the largest insurance company in Florida, with 1.4 million policies. Hardly the statistic of an “insurer of last resort.’’
And when the next Andrew hits, whether it’s in Palm Beach or Pensacola, Florida’s residents are on the hook for the damages.
So, like Florida, Citizens is between a rock and a hard place. Florida’s new circle of life now goes something like this:
To make a profit, condo builders need residents.
With regular commercial insurance virtually cost-prohibitive, condo residents need insurance below market rate to buy on the coast.
Florida taxpayers don’t want the risk so they pressure Tallahassee to rein in Citizens.
Coastal building stops. No one can afford the insurance.
The economy tanks.
In an effort to find some fiscal sanity in all of this, the state Legislature has asked Citizens to “depopulate,’’ to limit its customers and lower its fiscal risk. To do this, Citizens floated the idea this week of dramatically increasing the premiums of new policies, which is the traditional Florida method: Stick the newcomer.
This means that holders of new coastal insurance policies might see a premium that’s 42 percent higher than current policies. For non-coastal priorities, 25 percent higher.
Not surprisingly, members of the same tribe that asked Citizens to “depopulate’’ now are crying foul, since the builders in their districts can’t sell condos because . . .
Because of the circle of life in Florida.
Forgotten in all of this is the failure of some Florida politicians a few years back to push for a national catastrophic insurance plan. Such a plan would do what insurance is meant to do: spread the risk. Not unexpectedly, it made so much sense that it failed.
So here we are: Citizens Property Insurance. Can’t live with it, can’t live without it. But the bill is now due.
Only this time, the newcomers just might not be buying what we have to sell.