State is gambling on hurricane insurance

Mar 3, 2008

Pensacola News Journal--Mar. 3, 2008

With the 2008 hurricane season inching into our consciousness and the legislative session upon us, legislators are again sweating the potential consequences of their actions on insurance.

The only question: What they can do about it?

Gov. Charlie Crist and the Legislature have taken more than one gamble on hurricane insurance. The bluff gets called if Florida is hit hard by hurricanes this year.

The first gamble was freezing rates for homeowners with the state’s quasi-public insurance company, Citizens Property Insurance Corp. Its last resort for funds? Florida taxpayers, who "contributed" $700 million to Citizens after the catastrophic 2004 hurricane season (the money came from sales tax receipts that were booming from hurricane rebuilding).

With private companies dumping policies and refusing to sign new ones, Citizens quickly became the largest hurricane insurer in Florida. Unfortunately, to keep rates "affordable," the Legislature ignored actuarial tables and set the rates lower than the risk numbers called for.

Last year, hurricanes skirted Florida, and the state got away with the gamble. Citizens is now stronger than it was, but it still is at risk as are taxpayers.

"We are basically one hurricane away from the largest tax increase in Florida’s history," House Speaker Marco Rubio, R-West Miami, told the Daytona Beach News-Journal. …

Legislators know it is bad policy to set actuarially unsound rates, but the problem is compounding. The cap on Citizens’ rate increases expires after this year, and the newspaper said increases in some areas could hit almost 60 percent. That has politicians talking about a gradual increase to cushion the blow.

"I believe it (a law requiring actuarially sound rates) is the right public-policy direction for Florida," Senate President Ken Pruitt told the News-Journal. "However, we may need to consider changing the law to create a glide path to prevent rates from becoming unaffordable."

The second gamble is that Florida also provided low-cost reinsurance to commercial insurance companies, in the apparently unfulfilled hope the companies would pass the savings onto policy holders.

Chief Financial Officer Alex Sink has been warning that the state might have overcommitted there, too.

Meanwhile, all eyes are on the coming hurricane season.