State Farm pulling out of Florida is the symptom, not the problem.
The problem is that Florida refuses to fix its problem. We lack the will. We are dummies.
The governor and Legislature will not fix it because the choices are unpopular. We don't even really want them to.
And I am tellin' you, brothers and sisters, that the consequences of this dilly-dallying will be terrible when they come.
Here is the post-hurricane word that every Floridian will learn to hate: assessments. Ah-cess-ments.
What that word means is, "We didn't put away the dough to cover a storm of any size. We just promised to sock your insurance policy, big-time. Whoops, it's later."
For years, Florida has operated under, let's call it, the Magic Wand Theory.
The Magic Wand Theory says that we can wave a magic wand and not have to pay market prices for our risk of living on a spit of sand in hurricane territory.
For the past three years, we've waved the wand and said that the state's outfit, Citizens Property Insurance Co., could not raise its rates. This was a political choice, not an accounting choice.
For the private companies, we waved the magic wand and said, "Boo to you evildoers! You can't raise your rates as much as you want, either."
So now State Farm, which wanted a 47 percent increase, has called us on it.
I have no doubt that State Farm, with its cute Florida-only outfit, jiggled its numbers as much as possible to justify higher rates. But I also have no doubt that the company sincerely calculates that it cannot stomach its risk.
The worst-case scenario for a monster storm in Florida, a 1-in-100-year event, is something like $125 billion. That might not be much in Wall Street bailout terms, but it is an end-of-the-world loss for anybody else. Even the insurance industry.
For instance, here is how much cash Citizens has on hand: about $3.6 billion. But Citizens estimates its own maximum loss in a 100-year storm at around $23 billion. Even a much smaller storm threatens to wipe out the cash.
Most if not all of the rest has to be borrowed — and paid back by those extra ah-cess-ments on insurance policies.
Wait, doesn't Florida have a "catastrophic fund"? Sure. Here is how much actual cash that "cat" fund has on hand: $2.8 billion. It has to borrow anything above that, too.
For sure, borrowing makes sense in catastrophes. But the question is whether shifting this much risk to our future selves is a sane decision.
What's the alternative?
There are two, actually. Neither one is any fun.
The first answer is to let the private market operate more freely. Give everybody their rate hike. At some point, the market stabilizes.
The second answer, which we are backing into by default rather than smart planning, is to socialize the risk — total public takeover through a mega-Citizens. Even this approach has to have realistic premiums.
Instead we keep waving magic wands.
The governor is a wonderfully lucky man. Sometimes I joke that Florida will be safe from storms as long as he's there.
But when the day comes, and every Floridian takes a terrible hit in the wallet, I guarantee you we will be wailing and rending our garments and asking: "How could this have happened? Why didn't anybody do something?"
Well, here was how, and here was why.