Will Florida’s Windstorm Luck Hold Out?

by Matthew Glans on August 31, 2011

Florida has been taking a dangerous gamble with its policies on hurricane insurance in recent years. The state under former Governor Charlie Crist kept the rates of its state run insurer Citizens Property Insurance Corporation so low that private insurers were driven out of the state and Citizens became the main insurer for the world’s riskiest coastline. A new article in the Marco Eagle by Gerry Kramer sums up this gamble well, evoking the classic Sinatra song “Luck be a lady.”

In the article, Kramer discusses Citizens role in insuring Florida’s coastlines and the risk taxpayers bear should the program run out of funds to pay policyholders claims.

“Crist’s insurance reform bill forced companies to lower rates and simultaneously expanded Florida’s role through Citizens Property Insurance Corp. (CPI) as “the insurer of last resort.” As private insurers dropped clients because capped premiums didn’t cover the risk, CPI morphed into the largest insurer of Florida homes, covering some 1.3 million residences and businesses, about 26 percent of the total. CPI has a total exposure of more than $400 billion making it one of the top 10 home insurers in the U.S.

The amount CPI has accumulated for hurricane damage claims is about $16 billion including the recent $900 million proceeds of a municipal bond offering. There’s additional money in the Florida Hurricane Catastrophe Fund, a state reinsurance entity. But its liabilities are more than double its liquid assets. According to insurance experts, a category 5 hurricane directly hitting Miami would cause damages of some $25 billion, roughly the same (adjusted for inflation) as that caused by Hurricane Andrew in 1992. In 2004 four hurricanes hit the state.

In short, a $16 billion cushion may not be nearly enough to cover liabilities. If the $16 billion runs out, CPI could impose additional assessments on its policy holders to make up the difference. Moreover, other insurance companies may also have to foot the bill because CPI has the right to hit them up simply because the companies do business in the state. Potentially every Florida resident could also have to chip in (higher taxes) to cover the losses.”

Kramer calls the Florida insurance system a to a ticking time bomb, this is an appropriate comparison. Under Governor Scott, the state has begun to take steps in the right direction. The state needs to move away from programs that place the burden of insurance on the government and move towards a strong competitive insurance market.

Gerry Kramer’s article, “Money $marts: Luck be a lady for Florida… for now,” can be found online at: http://www.marconews.com/news/2011/aug/30/money-marts-luck-be-lady-florida-now/.

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