Recently a room of industry lobbyists was asked what they thought the source of Florida’s insurance problems might be.  “The real source”, they were cautioned, not just the ill-advised 2007 legislation we were all known to despise. 

The moderator listed several logical possibilities, including what he called  “…unrestricted construction on Florida’s vulnerable coastline”; to which we nodded in full agreement, prompting his follow up: “maybe we should prohibit new construction in such areas?”

As if on cue, the assembly erupted in simultaneous, albeit unintelligible, commentary, in essence using different words to say the same thing….

“Insurance is society’s mechanism providing for responsible  growth.  By subsidizing the cost of construction in vulnerable areas via assessments on those  who build in safer areas, GOVERNMENT  became the source of Florida’s so called insurance problem!”

As insurance people we knew this instinctively. Being of sound mind and having heard our undivided lamentation, the moderator understood it as well.

Lawmakers, on the other hand…not so much!

Earlier lawmakers subsidized coastal construction via the wind pool beginning in the late 1960’s and later with the FRPCJUA in 1993.  But…they never contemplated the irresponsible and debilitating subsidies of today.

Not only does Citizens have close to half a trillion in exposure, 80% of which is in harm’s way, but…it creates even more coastal exposure that  will  need subsidizing with the inexplicable offer of builders risk coverage.  Reports show Citizens currently has 876 builders risk policies with over $615 million in exposure; over half of which is commercial wind-only on the coast.

Not too long ago I was in downtown Miami walking to a meeting and I counted nine huge condominium buildings under construction. And…it was a short walk. This, in a state which already has coastal exposure of $1.937 trillion–more than even New York.  Worse, it was after the 04/05 storms.  Wind coverage was scarce.  Reinsurance was rocketing upward.  And no insurer was providing builders risk coverage.

None…except Citizens!

If a hurricane of the same force and path as the 1926 Great Miami Hurricane strikes the area where I was walking today it would cost $150 billion. The Insurance Information Institute (III) projects in 2020 it would cost $500 billion–an amount sure to turn the lights out on Florida’s economy and scare the daylights out of reinsurers.

This is why Governor Scott has asked Citizens to do what it can, without legislation, to curtail its exposure and policy count–most notably including the elimination of builders risk coverage.


Keep in mind another oft forgotten angle here.

America’s coastal counties are notably wealthier than inland counties with both higher average home prices and a larger percentage of $500,000 and $1 million homes. Florida’s accommodation of coastal building, including residences which are disproportionately vacation homes and/or owned by snow-birds, have caused 47% of our beaches to qualify as critically eroding.

The head of the Florida Consumer Action Network (FCAN), Bill Newton, argues that regardless of the amount, subsidizing construction on the coast is okay because those on the coast pay more in sales and property taxes.  He wrote…

“The coastal areas of Florida are major economic drivers, with many benefits going to other areas. Would you argue that the inland counties benefiting from tax dollars generated on the coast should return those funds?”  


Even allowing for Newton’s trial lawyer proclivity, his logic creates an almost irreconcilable discrepancy for an organization purporting to defend the needs of the “needier”. FCAN’s Vision Statement says it is “…a model for the nation in the way we address…environmental justice.”  As far as activist rhetoric goes, sounds great, but… not to environmental groups, none of which agree with Newton. (See note below).

“State insurance regulation has created a system that subsidizes insurance for wealthy coastal residents at the expense of relatively poorer non-coastal residents” according to a study by George Mason University. The president of the Florida Wildlife Federation, Manley Fuller, says “… people who choose to develop or redevelop in predictably high-risk areas should do so on their own dime, instead of relying on subsidies…”

In summary, maybe government is predisposed to counter-productive political solutions.  But, confiscating inland money to promote coastal construction, not only creates a moral hazard that undermines society’s goals, it disproportionately consumes global capital which increases retail pricing to the point that politicians must find even more political solutions to subsidize even more coastal building.

It’s time to stop the madness!

While trial lawyer fronting groups may never be able to do so, everyone else–environmental groups, insurers, agents, reinsurers, lawmakers, consumers–should support Citizens move to reduce exposure by eliminating subsidized builders risk coverage from its portfolio.

After all…doing so doesn’t mean people can’t build, or live, on the coast. It just means if they do, others shouldn’t be forced to pay for it.


Note: See the Executive SummaryEroding Long-Term Prospects for Florida’s Beaches: Florida’s Coastal Management Policy”  as provided by the authors at the Conservation Clinic at the University of Florida, Levin College of Law.  Please download the entire report for a thorough and well-referenced discussion. In addition, see the relevant pages of the Florida State Report in Surfrider’s State of the Beach report.

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