Today is day one, 2012. Lawmakers are less than a fortnight from the annual opportunity to cure causes that consistently leave Florida as America’s least desirable property insurance market.
Redistricting will bog things down a bit; in part, because it’s the perfect excuse for doing less. So, too, will gambling and an occasional petty distraction from a term-limited officeholder.
Undeniably, storms are at the source. The last six years notwithstanding, we have too many of them. Worse though, are the far too many political over-reactions that transformed the majority, which were largely middling blows, into mind-boggling financial catastrophe’s and, along the way, created dramatically unfair financial burdens on those who could least afford it.
The Florida Catastrophic Storm Risk Management Center (The Center) just released the most comprehensive report of what’s been going on and what must change. It’s the best I’ve seen. In the nick of time!
In “The State of Florida’s Property Insurance Market 2011”, I sense that The Center distinguishes itself as the “go-to” entity for policy makers seeking academic detachment when making decisions of long, sometimes irreversible, impact.
Its prose is layman-like enough to explain real and lasting solutions to those who earnestly seek them. Senator Garrett Richter, who chairs the Banking and Insurance Committee has shown more than a willingness to do what can be done in the Senate. Governor Scott and the Cabinet have done what they can to signal that change must occur at Citizens Property Insurance Corporation (Citizens). Cat Fund chief, Jack Nicholson, has triggered appropriate alarms. Even the Citizens board put forth an unprecedented slate of recommendations which legislative leaders could give wings…if they would just choose to.
In the absence of lawmakers making that choice (and even if they do), I urge you to read The Center’s report; if for no other reason than to say you did. It gives perspective to what’s been done to Florida, why, and what can be done about it. Saying you read it should give your opinions credibility. Did I mention that I read it?
The timing of its release is perfect; which to some will make it “suspect”. It’s message is complete and detached from political influence; which to some will make it “biased”. Its research is exhaustive and meticulous; which to those same people will make it ignored. But…The Center is to be commended for what it has done and, hopefully, will continue to do to light Florida’s way.
The Center offered numerous recommendations. The following, enhanced with commentary from yours truly, are a few of the more notable.
Increase premiums for Citizens’–Not easy but, necessary; and can be done in so many ways. Lawmakers could eliminate certain elements of Citizens operation from the glide path. The Insurance Consumer Advocates Office (ICA) once testified that sinkhole premiums should be excluded. I agree, but…also prefer allowing reinsurance purchases by Citizens to be excluded from the 10 percent cap. I would also prohibit the glide path from being calculated as a statewide average and instead have it be a mandatory 10%, across the board, increase, continuing until the determination that Citizens rates are, on average, 10% higher than those with the highest average rates in the private market. Louisiana Citizens uses a similar approach.
Citizen’s and private insurer’s provide less coverage–“Limited coverage would make insurance more affordable,” the report noted. Most notably the report embraces the idea of Citizens selling an HO-8 policy instead of a competitive HO-3. An HO-8 is approved by the OIR, widely available in the private market and would eliminate any doubt about whether the private market was more attractive coverage-wise. The Citizens board has decided to enact itemized coverage limitations to the HO-3 instead. While helpful, that shows a desire to only take steps that lead half way to the destination.
Reduce how much cheap backup coverage the state sells–Agreed, the Cat Fund is, as its chief said, “dangerously over-exposed.” But…any reforms that negatively impact the price discrepancy between the private market and Citizens will have consequential results offsetting any potential gain, or worse. In my opinion (did I mention I read the report?), given the size of Citizens current footprint, Cat Fund reforms must be accompanied with measures that reduce Citizens exposure and policy count commensurately.
Shift the focus from making rates affordable to making them fair–This highlights the problems with the arguments of Senator Fasano and trial lawyer front groups like Florida Consumer Action Network (FCAN), or Policyholders of Florida. If regulators and lawmakers want to make rates affordable, they should subsidize premiums for those who can’t afford them. Stop assessing those who can’t afford them to benefit a minority of largely wealthier coastal dwellers or, in the case of sinkholes, those more likely to be clients of a handful of central west coast law firms.
Stop inflating discounts to policyholders–this problem, outlined in the white paper and mitigation report I wrote for FAIA, may not go away anytime soon. The Center’s report illustrates the source of inflated mitigation credits as did the white paper. However, I would add to The Center’s recommendation by preventing Citizens from providing coverage to those who can afford to mitigate and choose not to do so.
Require home sellers to disclose the cost of hurricane insurance–Not gonna happen, but… would change minds about building in riskier coastal areas. If mitigation grades for each home were available, as was recently repealed, it would hasten the day when all appropriately mitigated Florida homes are insured in the private market and only those that aren’t properly mitigated are insured in Citizens.
Provide tax breaks and other incentives to insurers–Would apply to insurers that want to sell property insurance in Florida and would assist in building reserves which would reduce dependency on reinsurance which would lower upward pressure on pricing and increase availability. It would also be nice if Congress were to overcome the objections of some insurer groups and exempt catastrophe reserves from federal income taxes. Which, for those who care, is standard practice in most every developed country in the world.
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