Editorial: Insurance Nightmare

Apr 28, 2011

The following article was published in the Miami Herald on April 28, 2011:

Insurance Nightmare

Worst property insurance idea of the year: Gov. Rick Scott’s reported plan to eliminate or shrink Citizens Property Insurance by leaving its 1.3 million policyholders at the mercy of a problematic private market and the unregulated “surplus lines” market where the sky’s the limit on premiums.

Over the weekend, a report in the Sarasota Herald-Tribune that was compiled from multiple documents and sources said the current Citizens bill in the Legislature originated with a notion by the Governor’s Office to completely phase out Citizens. This week, Brian Burgess, Scott’s spokesman, said the governor never supported that plan.

If this is what the governor ever had in mind, he’s smart to back away. The bill under consideration in the Legislature is bad enough, but drastically shrinking or eliminating Citizens at this time would be a disaster for Florida residents and businesses.

The report said even insurance industry lobbyists at a secret meeting with the governor’s staff in February were appalled because the private insurance market can’t absorb policies from those million-plus Citizens policyholders. The only option for many beleaguered consumers would be the surplus lines market, where rates are unregulated and not backed by a state guarantee fund.

A frustrated Sen. Mike Fasano, Republican of New Port Richey, called the governor “clueless” regarding the plight of policyholders who every year must face steeply rising windstorm insurance costs far out of line with inflation, not to mention salaries and incomes.

In the Senate, SB 1714, sponsored by Sen. Alan Hays, R-Umatilla, would increase rates for customers of Citizens up to 25 percent a year and force some policyholders out of the program. A House version caps the increases at 15 percent. The current limit is “only” 10 percent, and there’s talk of a compromise at 20 percent. That may be Tallahassee’s idea of a compromise; from the standpoint of policyholders, it’s price gouging.

Supporters of rate increases say Citizens has gotten far too big and, in case of a hurricane disaster, would leave every insurance consumer in Florida holding the bag for billions of dollars in claims that the state insurer must repay by adding new surcharges to future policies for years to come. That’s on top of existing surcharges for previous years of disastrous storms.

Shrinking Citizens is a worthy goal, but simply putting the monkey on the backs of policyholders is the wrong approach. Meanwhile, the private market has significant problems that the Legislature is ignoring. Citizens was created because the private market won’t touch vast areas of the state. Making Citizens less competitive with private insurance by raising rates serves only to punish policyholders who can’t get coverage elsewhere. Insurance companies don’t want their business to begin with.

The state has relaxed regulation to lure private companies into the market, but many of them cover billions of dollars of property but have only a few million dollars in the bank. In 2009, Florida led the nation with six property insurance companies going bust, even though the state has not suffered a serious hurricane hit in several years.

Unlike big companies like, say, Allstate and State Farm, companies with inadequate reserves are making hay while the sun shines — raking in premiums while there’s no disaster — but will be unable to withstand the flood of claims that accompany a big hurricane.

That’s where the focus of state lawmakers should be, along with other shortcomings in the market. Gov. Scott said during his campaign that he wanted to return Citizens to its original mission of being the insurer of last resort, instead of being the No. 1 insurer in the state. Good, but any proposal that allows price gouging is not a plan. It’s an insult.