With the start of another hurricane season today, Floridians still must count on favorable weather patterns and luck rather than a reliable property insurance market to make it through the next six months. Private coverage remains unavailable or unaffordable in too many coastal areas. The state-run insurer's rates remain too low, and the potential liability of the state's hurricane catastrophe fund is still too high. Yet there are glimmers of hope that Florida is headed in the right direction — if it can make it through another season without a major hurricane.
First, Gov. Charlie Crist has signed into law a reasonable plan for the state-run Citizens Property Insurance Corp. to start gradually raising rates. The three-year rate freeze will end at the end of the year, and Citizens will start raising rates by up to 10 percent a year. The rates are actuarially unsound now, and it would have been irresponsible to continue the rate freeze. While any increase can be painful in the midst of an economic recession, the maximum increase is manageable and homeowners now know what to expect. As rates gradually rise and Citizens builds up more cash from premiums, the likelihood of steep assessments on all property insurance — including policies from private companies — will start to decline.
In the same bill, HB 1495, lawmakers also responsibly began reducing the exposure of the state hurricane catastrophe fund that sells inexpensive reinsurance to insurers. In 2007, the Legislature increased the amount of coverage by $12 billion in an attempt to lower premiums and persuade insurers to remain in the Florida market. That effort did not produce the projected rate reductions, and it leaves taxpayers too vulnerable to billions of dollars in unfunded claims after a major hurricane. Now the state will phase out that additional coverage by $2 billion a year over six years. The Cat Fund is expected to have just $4 billion in cash this season and remains some $14 billion short of being able to cover its exposure. But at least there is finally an acknowledgement that the status quo is a prescription for financial disaster.
The property insurance market remains far from healthy. Citizens, with more than 1 million policies, still has more than a quarter of the residential market. Several dozen smaller insurers, often backed by state loans, have emerged but remain untested by a major storm. And State Farm, the largest private insurer with more than 15 percent of the market, plans to leave the state.
But the answer is not to let large insurers such as State Farm gouge their customers. The governor is right to have concerns about HB 1171, which would let big, well-capitalized insurers charge whatever they want and avoid having their rates approved by the state. This would only drive rates up further, not down. As long as mortgage companies require homeowners to have property insurance and there are so few options, it is not a free market where consumers have the freedom to choose. The insurance market must remain regulated, and it would be unfair to let the biggest companies name their price to stay in Florida.