It’s easy to understand why many Florida residents may be upset with the recent decision by insurance regulators that Citizens Insurance, the Florida state-run insurer, will be raising its rates, but that doesn’t mean the rate increase is bad.
In fact, the rate hike is good for the state, since people living in safer areas should not be subsidizing those who live in high-risk coastal regions. Citizens was never meant to be a major provider of insurance for Floridians. It’s supposed to be a small “last resort” provider for people who legitimately can’t find coverage in the private market; instead it has become one of the largest providers of windstorm coverage in the state.
Any policy argument regarding Citizens’ property insurance rates should begin and end with asking how Citizens can be phased out, not expanded. Citizens was never meant to be the chief provider of windstorm insurance for Floridians. Residual markets erode the private market and have generally pushed consumers towards the state-run companies, which were created to be insurers of last resort.
Scaling back the residual market would allow free-market forces to take hold, encouraging competition and discouraging homebuilding in risky coastal regions.
Neither Citizens nor the state Catastrophe Fund can claim fiscal health. Florida’s Cat Fund, the main reinsurance provider for Citizens, currently has billions in potential liabilities. These are unpayable. No state has ever issued more than $11 billion in bonds all at once. These liabilities create the potential for fiscal collapse in the event of a significant storm, necessitating tax increases or service cuts to cover costs.
Allowing insurers to set rates actuarially, based on risk instead of political pressures, would help ensure the solvency of current insurers in the state and attract new companies back to Florida. Increasing competition is the best way to lower costs and reduce the burden on Citizens and the Cat Fund.
A smaller Citizens reduces risk for taxpayers and discourages development where it shouldn’t happen.
Citizens Insurance, it’s certain, has some problems. But it’s moving in the right direction.
