On the last day of hurricane season, Floridians can count their blessings. No major hurricanes hit the state this year, and property insurance premiums dropped modestly for many homeowners. But the property insurance problems remain very real, coverage remains unaffordable and unavailable for many, and legislators need to make some tough decisions before Florida's luck runs out.
Despite warnings from Chief Financial Officer Alex Sink, the Florida Hurricane Catastrophe Fund shoulders far too much risk and could not meet its reinsurance obligations after a major hurricane. The state-run Citizens Property Insurance Corp. still charges rates that are actuarily unsound. Some 14 private insurers have been approved to take about 400,000 policies out of Citizens, but there are legitimate questions about the financial viability of some of these smaller companies and the cumbersome nature of the take-out process for policyholders.
When Florida's luck runs out, the disaster will stretch beyond the loss of life and property. A major hurricane would bring economic calamity that would force large insurance assessments and tax increases Floridians would not be able to absorb as they coped with the loss of their homes and businesses. Unless there is a minor miracle in Washington and Congress creates a national catastrophe fund, it is up to Gov. Charlie Crist and the Legislature to make some hard decisions. They should:
• Reduce the exposure of the Cat fund. Increasing its reinsurance obligations to $28-billion turned out not to be worth the modest premium reductions for policyholders. Given the turmoil in the financial markets, the fund could never sell enough bonds to meet those obligations. Even if the bonds could be sold, paying them off would require huge tax increases.
• Start increasing rates for Citizens policies. The premiums are frozen through 2009, but it is irresponsible to keep charging rates that are actuarily unsound. Lawmakers should set a multiyear schedule for gradually increasing rates so policyholders would have certainty and time to adjust.
• Review the confusing process for Citizens policyholders who are targeted by private insurers. It is reasonable to require the policyholders to opt out of the private insurance rather than opt in; after all, it wasn't so long ago that they had no option at all when a private insurer wanted to cover their homes. But legislators should consider limiting how often the same homeowner can be approached by private insurers who want to take their business from Citizens. The public policy goal should be to move as many policyholders out of Citizens as possible, but there has to be more order and transparency to the process.
• Renew state incentives to encourage more Floridians to fortify their homes by adding shutters, reinforcing garage doors and taking other measures. The My Safe Florida Home program had its problems, but it awarded 35,000 grants and provided more than 400,000 free wind inspections. It should be revamped and revived. While some insurers complain about the state-required discounts for hurricane shutters and other improvements, hardening homes is one of the long-term answers to driving down rates — and Floridians deserve a break for making the investments.
There is one winner in all of this. The governor and Cabinet agreed to pay $224-million to Warren Buffett's Berkshire Hathaway company for the right to borrow up to $4-billion to help the Cat fund pay claims if needed. The loan wasn't needed, but Buffett will still pocket the easy cash.
That is a poor excuse for public policy. Thanks to luck or wind currents, the governor and state legislators have another opportunity to get Florida on the right track before the next big hurricane. They ought not waste it again.