Warren Buffett won't touch Florida, even for another $224 million. State Farm is leaving, and there is no guarantee Washington will come to the rescue. That leaves Gov. Charlie Crist and the Florida Legislature in a familiar predicament: searching for answers to the property insurance crisis and hoping the state's recent luck holds through another hurricane season. What is clear is that doing nothing is not an option.
Florida cannot responsibly wait for a national catastrophe fund, which is the long-term solution to spreading the risk of hurricanes in this state and other calamities elsewhere. President Obama pledged during his campaign to support a fund, and the state's congressional delegation should keep pressing. But winning over Congress will take more time than Florida has left to reduce its financial vulnerability.
First, lawmakers have to deal with the Florida Hurricane Catastrophe Fund. The fund, which offers cheap reinsurance to insurance companies, has just $4 billion in cash but cannot possibly meet more than $17 billion in obligations. That does not satisfy rating companies that rate the financial viability of insurers, which depend on the Cat Fund to cover claims after a major storm. Buffett's company was paid all of that money last year for a pledge to lend $4 billion if a big hurricane hit. The major hurricane never came, but even Buffett is unwilling to make the same bet this year. The state is seeking a line of credit from the federal government, but if that credit is not extended soon the only option is to dramatically reduce the size of the $28 billion Cat Fund. Homeowners' premiums would go up, but better to pay higher premiums now than for the state to be bankrupt after a hurricane.
Second, the state-run Citizens Property Insurance Corp. has to be allowed to raise its premiums. The premiums are not actuarially sound, and a three-year rate freeze has to expire. That does not mean homeowners' premiums have to skyrocket. The premiums should rise gradually over several years, and the plan ought to be clear so that policyholders can prepare for upcoming expenses. Paying a reasonable increase now will reduce the likelihood of major assessments after a hurricane.
Third, legislators need to get more creative. That means finding more ways to continue to nurture small, Florida-based insurers, whose success is even more critical as State Farm departs. That means re-energizing My Safe Florida Home, which provided 400,000 free wind inspections and nearly 39,000 grants to help homeowners buy storm shutters and harden their homes. And that means studying 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. It may not work, but it's worth a look.
There are no perfect choices, but the state has a financial and moral obligation to be more responsible about reducing the property insurance risks shouldered by all Floridians. Luck is not a long-term strategy.