State Farm's decision to stop selling property insurance in Florida does not create a new crisis. It brings more urgency to a festering problem and forces Gov. Charlie Crist and the Legislature to refocus their efforts. Holding down premiums, hoping hurricanes avoid the state and shifting enormous financial risk to taxpayers for damages after a major storm add up to an ineffective and unsustainable strategy.
The only surprise in this week's announcement by State Farm Florida is that the state's largest private insurer did not pull out sooner. By their lobbying efforts in Tallahassee and their unjustified requests for enormous rate increases, it has long been clear the company had little interest in making property insurance available and affordable. They have hardly been a good neighbor to Floridians or a good corporate citizen in Tallahassee.
The state made it too easy for State Farm to plead poverty. Years ago, lawmakers enabled State Farm and other insurers to create state subsidiaries. That means those subsidiaries can send profits to their national corporate parents in good times and shield their losses in bad times. It is bad public policy, and it concentrates risk instead of spreading it. Now State Farm has the gall to complain that the state-required premium discounts for making homes more storm-proof are too steep. Apparently, it wanted homeowners to pay for hurricane shutters so it would face fewer damage claims and make more money. The request for a 47 percent rate increase after no major hurricanes for three years was indefensible and seemed calculated to force a rejection that would give it an excuse to leave.
With State Farm preparing to drop 1.2 million policies over the next two years, the governor and the Legislature should be motivated to aggressively overhaul the property insurance system. A national catastrophe fund would be welcome, but Florida cannot wait for Congress to act. When the regular legislative session starts in March, lawmakers should:
• Lower the limits on the state hurricane catastrophe fund, which sells inexpensive reinsurance to insurers. Expanding the fund's capacity has not significantly reduced rates. There is considerable doubt the state could borrow the money it would need to meet its obligations, and even if it could raise the money the financial burden on Floridians would be untenable.
• Raise premiums for the state-run Citizens Property Insurance Corp. The rate freeze runs through the end of this year, and Citizens rates are actuarially unsound. Many State Farm policies could wind up in Citizens. A multiyear schedule of reasonable increases would be a step in the right direction and reassure homeowners they would not face unexpected spikes.
• Continue to encourage small Florida-based insurers. The more insurers who have the financial backing to take on small portions of the market, the more the risk can be spread.
• Think outside the box. A proposal that would have the state set and collect all hurricane premiums in return for private insurers servicing all policies and insuring other liability deserves serious study. It might prove to be unfeasible — but so is continuing to cross our fingers and hope for the best.
Crist's dismissal of State Farm's departure ("Floridians will be much better off without them") is understandable given the insurer's arrogance and disregard for their customers. But the only way Floridians will be better off is if the governor and the Legislature rise to the occasion and responsibly address a property insurance crisis that poses a serious threat to Florida's future.