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On the brink of economic disaster

Published Dec. 6, 2006

Florida faces a looming economic crisis. I am not speaking of an unemployment crisis, an inflation crisis, a banking crisis or even a tourism crisis, though I may very well be talking about those things soon enough if we continue down this spiraling path.

What I am speaking of is an insurance crisis, and it has the potential to decimate every aspect of our state's economy.

Many homeowners, landlords, renters and business owners across the state would argue that this is already occurring, that the rising costs of property insurance, windstorm insurance and sinkhole insurance are discouraging investment in our state and making people think twice about buying a new home or even moving to Florida in the first place. I agree with them, and, unfortunately, it's about to get a lot worse.

On March 1, Citizens Property Insurance Corp. - the state-run insurer that provides insurance to home and business owners in high-risk areas and others who cannot find coverage in the open, private insurance market - will begin charging policyholders a premium that includes enough of an increase to cover Citizens' cost of purchasing reinsurance. This was mandated last year by the Florida Legislature in Senate Bill 1980.

However, Citizens is not required to actually buy the reinsurance and has no plans to do so. Citizens is simply required to pass along the fictitious costs to Floridians as if it were purchasing reinsurance.

What does this mean for home and business owners? It means an average rate increase of nearly 56 percent for most of Citizens' residential policies and an average 610 percent increase for its commercial policies.

How did this happen, you might ask?

It is no mystery that property insurance has become unaffordable in Florida. Last year, the Florida Legislature attempted to provide some relief through the passage of Senate Bill 1980. However, in the closing hours of the 2006 legislative session, insurance industry lobbyists managed to sneak language into the bill requiring Citizens to raise its rates as if it were purchasing expensive reinsurance, even though Citizens does not plan to actually buy it.

That leads us to a second question: Why? Why would private insurance companies care how much state-operated Citizens raises its rates?

The answer is simple: Insurance companies have been seeking state approval of record rate hikes during the past couple of years, and in many cases, their requests were lowered or denied. But if Citizens raises its rates by an astronomical amount, then the high rate requests that private companies submit don't look quite so bad anymore. It's a numbers game, and it is being played with Floridians' hard-earned money.

Obviously, this situation is ludicrous, and something must be done. In our state, insurance is a necessary burden that all home and business owners must bear, especially considering the constant threat of hurricanes. Because of this, the availability and affordability of insurance is a vital component of our state's economy. And the lack of such insurance is an economic disaster waiting to happen.

As insurance becomes increasingly expensive, several things begin to happen.

Homeowners purchase less coverage or completely drop their policies in an effort to save money. Prospective homeowners are priced out of buying the home they want or are forced to forgo the American dream of owning a house altogether. Landlords are forced to pass along rising insurance costs by increasing their tenants' rents. Small business owners, who often lease their space, are similarly impacted through increased rent, and businesses that own their facilities experience insurance rate increases just like homeowners. Just as landlords pass on insurance rate hikes to their tenants, businesses pass such increases on to their customers in the form of increased prices for their goods and services.

Increased prices mean less purchasing, and considering Florida's No. 1 industry is tourism, I don't have to explain what sort of economic impact that would have on our state.

So what is the answer to this crisis? There is no single solution. The Florida Legislature attempted to provide some answers last session with Senate Bill 1980, but with the inclusion of the insurance industry's latest ploy to increase rates, I could not in good conscience vote for the bill. The reasons why I did not support the legislation are now evident for all to see, as drastic insurance rate hikes are on the horizon for those who have nowhere else to turn but Citizens Property Insurance, which is in essence the insurer of last resort.

A special session of the Legislature has been called in January to once again address the insurance crisis. At that time, the two provisions in Senate Bill 1980 requiring home and business owners to bear the cost of reinsurance that Citizens is not even going to purchase must be repealed.

This is, by no means, the only solution to providing for a healthy and affordable insurance market in our state, but it is a much-needed beginning.

Mike Fasano of New Port Richey represents District 11 in the state Senate.