As of this morning, Florida has escaped another hurricane season. But Florida homeowners should thank the hurricane-calming effects of El Niño more than any fundamental change in the state's property insurance system. The state still relies far too much on a model that pays for a hurricane after the fact — and masks the true costs of reasonably insuring against disaster.
After four mild hurricane seasons, the state is still muddling through how to structure and regulate an affordable, actuarially sound system of insuring against hurricane loss. The state-run Citizens Property Insurance Corp. remains over-exposed, and start-up companies are not filling the void left by large insurers. At this rate, the state's luck will run out long before the insurance market is ready for a hurricane.
And when a major hurricane hits — remember the 27 named storms of the '05 season? — some private insurers will go bankrupt, the Catastrophe Fund will be used up and Citizens will be hard pressed to cover its losses. In fact, many homeowners would be stunned to discover that they could pay thousands of dollars in assessments after a hurricane to cover a shortfall — even if they are not insured by Citizens.
State Sen. J.D. Alexander, R-Winter Haven, points out that in the season just ended, the Cat Fund — which provides backup insurance to insurers — could at best have generated $16 billion to cover reimbursements that could have totaled $23 billion, a $7 billion shortfall. Citizens itself could have found itself $7 billion short.
The state is doing some things right. The Legislature finally lifted a three-year freeze on Citizens rates, and regulators granted Citizens an overall 5.9 percent rate increase. Over time, Citizens rates will inch closer to being actuarially sound as some rates are way up and others are actually down, by location, depending on risk. And after declaring it would leave Florida after losing a bid for an untenable rate increase, State Farm and state regulators are still talking. With other insurers receiving substantial rate increases after hurricane-free seasons, State Farm eventually may end up continuing to insure at least some Florida homeowners —- at a higher cost to the homeowners, of course.
Other developments are cause for concern. People who spend the money and time to harden their homes should be given appropriate discounts on their premiums, and the discounts are aggravating to State Farm and other insurers. While it is wise to make sure homeowners aren't making false claims about having hardened their homes, it would be shortsighted not to require reasonable premium discounts for homeowners who have honestly invested to better protect their homes from storms. A home that withstands a hurricane is to everyone's benefit.
The Legislature needs to continue to search for better ways to prepare for the huge cost of rebuilding after a major hurricane. The big one will come, and even after four mild years, the state is not at all ready.