Try to follow this logic. Citizens Property Insurance Corp., the underfunded state-run insurer, does not charge actuarily sound rates. If a major hurricane hit Florida, insurance policyholders in this state would be hit with billions of dollars in assessments because Citizens would not have enough money to pay claims. Yet in the final week of the legislative session, state lawmakers appear poised to take $250-million from Citizens and steer it to new private insurance companies. That would be a reckless gamble, and Gov. Charlie Crist should follow through on his veto threat if legislators don't come to their senses.
When it comes to property insurance, legislators still can't chart a clear direction. A bill approved by the Senate and awaiting a vote by the House (SB 2860) contains some provisions that would create even more business for Citizens when the goal should be to shrink the insurer. It would let Citizens start covering homes worth more than $1-million, based on the dubious argument that those homes tend to be better constructed and would suffer less hurricane damage even if they are on the waterfront. It also would prevent Citizens from offering wind-only coverage to new customers, which further pushes private insurers out of the market altogether.
There are other provisions in the Senate bill that are more in touch with reality. Most importantly, it would end the politically motivated freeze on Citizens' rates. It establishes a reasonable timetable for calculating sound rates and gradually increasing rates to reach that target starting next year. That would start putting Citizens on better financial footing while reassuring its policyholders that rates would increase by no more than 5 percent next year and 10 percent in each of the two following years.
But it makes no sense to start increasing rates on the one hand while taking $250-million out of Citizens with the other. Supporters argue that a similar 2006 program using general tax dollars has been successful. More than a dozen Florida-based companies took advantage of the loan program and issued more than 500,000 policies. But there were no restrictions on where those new companies could write policies, and Citizens remains the primary insurer in high-risk areas. To take money from Citizens and loan it to start-ups that can cherry pick the lowest-risk areas would be another high-stakes roll of the dice that could backfire.
House and Senate negotiators were continuing to work on property insurance Monday. If they come up with any compromise before Friday's adjournment, the deal should gradually increase Citizens' rates and avoid robbing the state-run insurer to lure private companies into the market. After a hurricane hits, Citizens is going to need every dollar it has and then some.