I was taken recently by a letter to the editor of the Florida Times Union. It was signed by Tom Smith of St. Augustine and titled; “A Botched Deal”. Not only did its use of sarcasm capture my fancy, but…it focused on the irony of Citizens “assessments” and how they stick in the craw of those assessed; which, in the case of Citizens, is a lot of craws.
I thought you’d like to see what Tom Smith had to say, and how I would respond had his letter been sent to me. Enjoy!
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A BOTCHED DEAL
I’d like to express my profound thanks to the caring politicians of our state for setting up Citizens insurance, which insures hundreds of thousands of homes, businesses and condominiums whose owners otherwise might not be able to find coverage.
Thank you for substituting your political judgment for the professional judgment of greedy insurance companies. We all know they are only interested in profits.
The system is working so well that my insurance company is charging me an “assessment” to enable Florida Citizens to pay the claims they received from past hurricane seasons.
I have only one suggestion to improve on this brilliant plan. Instead of having me pay money to my insurance company which then gives the money to Florida Citizens insurance, which then gives the money to their policyholders to pay claims, let’s skip the middlemen.
Just give me the names, addresses and dollar amounts that I should pay to Florida Citizens policyholders.
In all seriousness, one of three possibilities exists: 1) my insurance company is lying to me, or 2) Florida politicians are stupid, or 3) they think we are.
Which could it be?
Tom Smith, St. Augustine
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Dear Tom :
Your insurance company isn’t lying to you. Lawmakers actually did create assessments and made them part of your insurance bill. They did this instead of taxing everyone so they wouldn’t be blamed. They also did it so that those who don’t want to pay more don’t have to and those who shouldn’t pay more would have to. Please pay your assessment; coastal homeowners need the subsidy and not paying is something you’ll regret, I promise.
Frankly, according to consumer advocates you should be proud to pay this subsidy; so, too, should those on food stamps and living in subsidized housing. Their assessment, like yours and mine, will go a long way to helping many millionaires live as they have become accustomed; on Florida’s beautiful sandy beaches and sun swept coastline. Citizens has over 400,000 residents in just its Coastal Account and many don’t want to replace old roof’s, increase their deductibles or pay more from the E&S market. That’s why you and others who built in the right place and/or the right way, need to help. After all…Florida needs more vacation homes on its coast; you know, to assist with coastal erosion and to obstruct the view of those less fortunate; presumably so they won’t know what they’re missing!!! 🙂
Yes Tom, there are a lot of Florida’s poor people in Citizens, living in mobile homes or older homes no insurer wants. But, many are there because Citizens offers similar, sometimes superior coverage, at a bargain price much lower than the “approved” rates of private companies; like the one forced to assess you. And Tom, don’t forget, you also pay more whenever commercial policyholders avoid their assessment by charging higher prices for what they sell. In essence you’re paying twice! What a great guy you are!
You asked for names and addresses. Well, Tom, this is strictly confidential. But, I’ve been told that Hulk Hogan’s $26 million mansion is in Citizens. Karl Rove and Mike Huckabee have coastal homes in Florida and are probably insured there as well. Some Palm Beach mansions are in Citizens, too. Heaven forbid if any had to upgrade or buy from the E&S market. After all, they didn’t have to do that with their estates in Massachusetts, California, or the Hampton’s.
What’s that? Instead of Occupy Wall Street you think taxpayers ought to Occupy Citizens instead?
Thanks for writing and have a nice day.
Scott Johnson, Tallahassee
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Scott, There are subsidies everywhere. 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? Do we really want to get into the game of analyzing every transaction in the state to be sure nobody subsidizes anyone? Even things like sports arenas that only some people use, but everyone pays for?
And those multi-million dollar homes on the coast. As you recently noted in a response to one of my comments, they are indeed all in Citizens. The reason the Legislature added those homes into Citizens is that they are good customers. Those homes tend to be quite safe, well reinforced, with complex security systems. They pay large premiums, which, even if subsidized, are profitable to Citizens, and serve to reduce the assessments Mr. Smith complains about.
The assessments are not a good way to attack Citizens. The fact is, the defining principle of insurance is “Spread The Risk!” The assessments do just that. When risk is spread everyone benefits and the system works. Segmentation of risk, or redlining, causes problems in the market, as we are seeing.
Bill, the coastal homes in Citizens were not added; they have been there going back to the creation of the FWUA which is now Citizens coastal account; and, as part of its expansion. You’re right, we should not analyze every state activity to determine the amount of subsidy, but…we should never create an “unfair” subsidy in order to benefit those who could mitigate their own exposure by acting responsibly. If you want to subsidize the coast with premiums from the middle of the state, as Citizens is currently doing. that’s fine…but it shouldn’t be done to the extent that wealthy people are able to avoid upgrading their homes or acting responsibly.
Spreading risk is not the only principle of insurance, it is a goal. A principle is that the goal must be reached by not creating a moral hazard or by ignoring the principle of indemnity. Indemnity says that each person must pay according to their exposure; otherwise the goals of an orderly society are undermined.
This is why the legislature recently repealed the prohibition against replacement cost hold-back. They realized that it was destroying the entire state’s economy and the insurance mechanism. So, too, is Citizens unfair subsidy.
Thanks for writing.
scott
PS; I noticed you never responded to my comments regarding how much money is being made off of sinkholes by Lawyers; particularly those that are out front claiming to fight for consumers. Have you seen the figures? What do you think? How does their income stack up against the 2.5% – 3.7% profit that insurer’s are limited to?
Also, for Bil Newton: I received the following email as a result of the original post. I’m putting it here because it partially addresses your reply.
“Why is there any need for mansions, vacation homes or other high-value dwellings to be in Citizens at all? For example, my second home. There’s a market for more coverage; I just preferred the low-ball CPIC quote (I do buy excess over CPIC). Is there any appetite to “glide path” out the state’s (and the country’s) most fortunate? Say, in 2012 we kick people with three or more homes out of CPIC; in 2013, you’re limited to two; and in 2014 primary residence only. And/or scale down the limits over time to a level not involving the word “million”.
Over time, I question whether we need assessments at all; with something closer to risk-based rates, as appropriate for an insurer of last resort, and an appropriate reinsurance program, the math would say the assessments would not be necessary (arguably outside of the extreme tail); and/or could be limited to the CPIC pool itself.
Keep up the good work, I’ll keep reading.”
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