It's a toss-up as to which is the bigger monster threatening Florida's property insurance market. • The state's troubled catastrophe fund with its potential $17 billion shortfall can't make good on promises to reimburse insurers and pay claims if big storms hit. On the other side, State Farm Florida's complete withdrawal from the homeowners market displaces 1.2 million policies over the next two years, many of which could end up with the already overburdened state-run insurer.
The Legislature will consider tackling both issues.
"I'd argue it's the most dangerous issue facing Florida," said Sen. J.D. Alexander, R-Lake Wales, the lead Senate budget writer. "It's the single biggest issue that could destroy our real estate market and be even more destructive to the economy than the current budget situation."
Both House and Senate committees met in February to learn more about State Farm's move and catastrophe fund problems. While lawmakers from both parties expressed concern and bills have been filed, no one tactic has gotten much momentum yet.
The ideas talked about so far include:
• Punishing companies like State Farm Florida that continue to sell more profitable auto insurance lines while pulling out of the riskier property lines.
• Preventing any insurance company, including State Farm, from dropping more than a certain percentage of its existing policies in a year.
• Forcing the state-run insurer to write all of Florida's windstorm insurance, the riskier and least profitable part of property insurance, in an effort to entice private insurers to the state.
• Reducing the amount of cheap state back-stop insurance that the private industry has to buy. The effort would reduce some of the risk in the hurricane catastrophe fund, but it would also raise rates.
Many in the more conservative Florida House don't have the stomach for anything that punishes or even deters the private market. Rep. Ellyn Bogdanoff, R-Fort Lauderdale, who is in the House leadership circle, wants to "get past punitive measures." She plans to sponsor a bill, which private insurers are clamoring for, forcing the state to take on all windstorm coverage.
"The reality is we can create a good regulatory environment where we can protect citizens and let the free market work," Bogdanoff said.
However, Alexander, who is desperate to keep State Farm in Florida and in his district, is skeptical about making the state take on all windstorm coverage. He said Florida's economy isn't strong enough to "bear even half the state's wind risk"; he's looking for other ideas to keep private insurers here.
An idea that has legs, industry insiders say, is to allow the public insurer, Citizens Property Insurance Corp., to slowly raise its rates over several years.
Citizens' rates have been frozen since 2006, with the Legislature extending the freeze even though Citizens' rates are not "actuarially sound," meaning the insurer wouldn't have enough money to cover claims if big storms hit.
Over the summer, a state task force that studied Citizens recommended that the insurer raise its rates. Even Senate President Jeff Atwater —who was the major force who stopped Citizens from charging more last year — agrees it's time.
But Sen. Mike Fasano, R-New Port Richey, thinks it's a bad idea to raise rates during a recession, and he's filed legislation to extend Citizens' rate freeze another year.
"Whether it be homeowners insurance or electric bill, water bill, this is not the time, during an economic crisis when we should be talking about raising rates of any kind on anyone," Fasano said.