Article Courtesy of The Orlando Sentinel

Editorial  

Published January 10, 2015

In late 2013, Gov. Rick Scott and members of the Florida Legislature got upset about rising homeowner insurance rates and urged action to protect consumers.

Note that the state’s political leaders didn’t rise up against the cost of hurricane insurance, over which they have a fair amount of control. They were angry at Congress for passing legislation that threatened to raise flood insurance premiums as much as 300 percent in some parts of Florida, notably in the Tampa Bay area.

Congress finally did repeal some parts of the bill, though coverage through the government-run National Flood Insurance Program — how much it costs and who must buy it — remains controversial in Broward and Palm Beach counties.

If only Tallahassee in 2015 could be less selective when it comes to outrage over expensive property insurance.

According to the National Association of Insurance Commissioners, property insurance in Florida — the coverage that includes hurricanes — went up 91 percent between 2003 and 2010. Though the increases have been smaller as nine straight quiet storm seasons have passed, Florida remains the most expensive state in which to insure a home.

From the industry’s standpoint, the problem is political intervention in the marketplace. In fact, in the last two decades — prompted by Hurricane Andrew — the Legislature has politically intervened on behalf of the industry.

Most notably, the Legislature created the Hurricane Catastrophe Fund, in essence a public subsidy to help carriers pay claims after bad storms, like Wilma in 2005, or multiple storm seasons, like Charley, Frances, Ivan and Jeanne in 2004. Among many other things, the Legislature has approved financial incentives for companies to write hurricane coverage. The Legislature has all but excluded companies from covering such perils as sinkholes and mold through basic policies.

Yet rates for almost all Floridians are not dropping; they are just rising at a slower rate. For all the progress in Florida’s real estate recovery, the cost of property insurance still represents a long-term threat.

We believe the Legislature’s approach has been based on two false assumptions: that there can be a normal property insurance market in Florida, and that large national carriers will write more policies if premiums are high enough.

In August, Tampa lawyer and State Farm lobbyist Mark Delegal wrote in the Sun Sentinel, “Florida is on a path where solvent, high-quality companies all compete in a fairer marketplace to earn the consumers’ business.” But in fact, companies like State Farm have been canceling policies and raising rates in coastal areas for years.

About seven years ago, State Farm wrote roughly 1 million homeowner policies in Florida. As of 2013, State Farm wrote less than 400,000. Since the industry claims that 90 percent of the wind risk nationally is in Florida, how can the market function normally without allowing rates that would price most people out of the housing market?

The Legislature touts recent actions to cut the number of policies in state-run Citizens, the insurer of last resort that became Florida’s largest insurer because so many homeowners couldn’t find private coverage. Once at 1.4 million, Citizens now has about 730,000 policies.
Most of those customers, though, have coverage with new, state-based companies that former Citizens board member Tom Lynch calls “undercapitalized.” Legislators pushed to shrink Citizens to avoid statewide assessments, but if the new companies collapsed there would be statewide assessments to replenish the fund that pays claims of insolvent companies.

A new approach to property insurance could take many forms. The Legislature, for example, could tell the Office of Insurance Regulation to conduct a “stress test” for property insurers — as the Federal Reserve does for financial institutions — to see if companies could withstand another Wilma or another 2004.

The Legislature also could acknowledge there is no free market and that Florida is one big insurance pool. With that in mind, perhaps a state-run entity could cover the first, say, $50,000 of damage, with private insurance available for homeowners who need more.

Whatever the ideas, the Legislature must get more creative. Floridians are hearing from the insurance industry that rates might start to come down if we have more calm summers, which means rates would rise if we have a hard year. If rates go up when we get storms and when we don’t get storms, where’s the outrage over that?

And members of the Florida Legislature got upset about rising homeowner insurance rates and urged action to protect consumers.

Note that the state’s political leaders didn’t rise up against the cost of hurricane insurance, over which they have a fair amount of control. They were angry at Congress for passing legislation that threatened to raise flood insurance premiums as much as 300 percent in some parts of Florida, notably in the Tampa Bay area.

Congress finally did repeal some parts of the bill, though coverage through the government-run National Flood Insurance Program — how much it costs and who must buy it — remains controversial in Broward and Palm Beach counties.

If only Tallahassee in 2015 could be less selective when it comes to outrage over expensive property insurance.

According to the National Association of Insurance Commissioners, property insurance in Florida — the coverage that includes hurricanes — went up 91 percent between 2003 and 2010. Though the increases have been smaller as nine straight quiet storm seasons have passed, Florida remains the most expensive state in which to insure a home.

From the industry’s standpoint, the problem is political intervention in the marketplace. In fact, in the last two decades — prompted by Hurricane Andrew — the Legislature has politically intervened on behalf of the industry.

Most notably, the Legislature created the Hurricane Catastrophe Fund, in essence a public subsidy to help carriers pay claims after bad storms, like Wilma in 2005, or multiple storm seasons, like Charley, Frances, Ivan and Jeanne in 2004. Among many other things, the Legislature has approved financial incentives for companies to write hurricane coverage. The Legislature has all but excluded companies from covering such perils as sinkholes and mold through basic policies.

Yet rates for almost all Floridians are not dropping; they are just rising at a slower rate. For all the progress in Florida’s real estate recovery, the cost of property insurance still represents a long-term threat.

We believe the Legislature’s approach has been based on two false assumptions: that there can be a normal property insurance market in Florida, and that large national carriers will write more policies if premiums are high enough.

In August, Tampa lawyer and State Farm lobbyist Mark Delegal wrote in the Sun Sentinel, “Florida is on a path where solvent, high-quality companies all compete in a fairer marketplace to earn the consumers’ business.” But in fact, companies like State Farm have been canceling policies and raising rates in coastal areas for years.

About seven years ago, State Farm wrote roughly 1 million homeowner policies in Florida. As of 2013, State Farm wrote less than 400,000. Since the industry claims that 90 percent of the wind risk nationally is in Florida, how can the market function normally without allowing rates that would price most people out of the housing market?

The Legislature touts recent actions to cut the number of policies in state-run Citizens, the insurer of last resort that became Florida’s largest insurer because so many homeowners couldn’t find private coverage. Once at 1.4 million, Citizens now has about 730,000 policies.

   
Most of those customers, though, have coverage with new, state-based companies that former Citizens board member Tom Lynch calls “undercapitalized.” Legislators pushed to shrink

Citizens to avoid statewide assessments, but if the new companies collapsed there would be statewide assessments to replenish the fund that pays claims of insolvent companies.

   
A new approach to property insurance could take many forms. The Legislature, for example, could tell the Office of Insurance Regulation to conduct a “stress test” for property insurers — as the Federal Reserve does for financial institutions — to see if companies could withstand another Wilma or another 2004.

The Legislature also could acknowledge there is no free market and that Florida is one big insurance pool. With that in mind, perhaps a state-run entity could cover the first, say, $50,000 of damage, with private insurance available for homeowners who need more.

Whatever the ideas, the Legislature must get more creative. Floridians are hearing from the insurance industry that rates might start to come down if we have more calm summers, which means rates would rise if we have a hard year. If rates go up when we get storms and when we don’t get storms, where’s the outrage over that?

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