Despite the efforts of the Florida Legislature, the state's property insurance system remains a mess. Private coverage remains unavailable in many areas and unaffordable most everywhere. The state has taken on too much risk in a failed attempt to lure the major private insurers back to the state, and the next disaster after a major hurricane will be enormous assessments on policyholders to help pay claims. It's time to stop counting on Washington for help and start considering other ideas.
Here's one that deserves a serious look in Tallahassee. Don Crane, a St. Petersburg resident and former legislator, put together his own citizens group that spent months looking at this question: What if the state collected enough money to cover hurricane wind damage, and private insurers came back into the market and covered everything else?
In concept, private insurers would issue policies, collect premiums and settle claims as they do nearly everywhere else. The state would set actuarily sound rates for hurricane coverage, and that portion of the premium would be sent by insurers to the state. The state would manage the money and build reserves, obtain what essentially would be a line of credit backed by the premiums and seek guaranteed federal loans on top of that to help cover big storms initially.
The concept is attractive on a number of fronts. In theory, private insurers would come back to the market. Premiums would be lower. There would be no need for the Florida Hurricane Catastrophe Fund, which sells cheap reinsurance and is billions of dollars short of covering its maximum exposure. The state-run Citizens Property Insurance Corp., which also is grossly underfunded, would dramatically shrink or fade away entirely.
Naturally, officials with the Cat Fund and Citizens are skeptical. So are private start-up insurers who fear the giants such as State Farm and Allstate would ramp back up and squeeze them out. It would take time for the state-run fund to build reserves, and it would cover all hurricane wind damage, including what private insurers cover now. It is a concept that may not work, but it is worth serious study beyond what Crane's group has done.
It can't be any more irresponsible than what Florida is doing now. There already is a 1 percent assessment on most insurance policies to cover the Cat Fund claims for the 2004 and 2005 hurricanes. That assessment was recently extended until 2014 to cover bills that are still coming in. To cover the Cat Fund's maximum exposure of about $28-billion, bonds would have to be issued that would require an annual assessment on premiums of about 5 percent for 30 years. Yet legislators failed to pass a bill sought by Chief Financial Officer Alex Sink to lower the fund's exposure by several billion dollars. Does that make sense?
Citizens is in only slightly better shape. It has less than $5-billion in cash but faces potential claims of almost $24-billion after a 1-in-100-year hurricane. About one-third of those losses would have to be covered by more assessments on top of the Cat Fund assessments. Yet legislators extended the freeze on Citizens rates through next year. Does that make sense?
Not many Floridians would spend months working on their own to search for a solution to one of the state's most pressing problems, as Crane and his group did. But they have taken the concept as far as they can, and it deserves a sophisticated analysis by the state. Gov. Charlie Crist, Sink or state legislators could order up a financial evaluation. If it turns out this idea is not practical or financially viable, come up with one that is. It is not enough to pray for a hurricane-free summer. Floridians should not face the prospect of paying enormous insurance assessments or tax increases on top of rebuilding their homes and lives after a major hurricane.