In a recent Florida Times Union editorial examining the main issues facing the Florida legislature, the authors zeroed in on two of the biggest insurance issues the state now faces: property insurance reform and rampant fraud in the states’ no-fault auto insurance system.
Florida has been teetering on the edge of financial ruin with its state run insurer, Citizens Property Insurance Corporation running in chronic debt and its catastrophe fund woefully inadequate to cover losses that could be incurred after a major storm. The kicker: if these funds fail, the taxpayers of Florida could be on the hook for the losses. The editorial points out these and other flaws in the system:
“Floridians are exposed to high financial risk from inadequate funding of insurance reserves.
If the state is hit by a major hurricane or a series of smaller ones, surcharges of up to 50 percent of auto and property insurance premiums could be levied for years.
The state-run Citizens Property Insurance, which was to be the insurer of last resort, has become the insurer of first resort, mostly because it offers rates so low as to drive other insurers out of the state.
Rates also need to reflect risks, meaning that beachfront properties should be charged their real cost instead of being subsidized by inland properties.
Apart from the immediate impact on consumers, if this state were unable to pay its property insurance bills, it could be devastating to the economy.”
In a recent article in the Marco Eagle, Patrick F. Maroney, Lorilee A. Medders and Charles M. Nyce of Florida Catastrophic Storm Risk Management Center offered several suggestions on how to improve the states catastrophe fund and reduce its reliance on Citizens. Maroney, Medders and Nyce argue that new reforms that bring more financial capital and gradually empty Citizens are needed to protect taxpayers from the risk of major storms.
“Consumers want transparency in property risk financing and to know what subsidies will cost them when state-run funds fall short. To achieve transparency, we recommend first addressing the appropriate mix of pre-loss insurance premiums and post-loss assessments. Strategies to attract financial capital to Florida’s property insurance market and return the FHCF to its original role as a market stabilizer are also imperative for ensuring sufficient capital. Speeding the glide path for Citizens’ rates is another recommendation to protect all policyholders from assessments. Absent a faster path to risk-based rates, it will take Citizens five more years to reach actuarially-fair rates, and we can’t count on more storm-free years.
These changes must be introduced with caution so as to not disrupt the marketplace, accompanied by efforts to promote risk reduction through property hardening, known as loss mitigation. Without loss mitigation, other market changes have only limited effectiveness. Improving homeowners’ knowledge of the benefits of mitigation and making mitigation more affordable are keys to reducing property insurance prices while maintaining fairness. What is most fair is helping Floridians see the true cost of risk and deal with those costs in the present day, not letting the debt pile up for the next generation.”
The growing issue of auto insurance fraud
Florida’s insurance problems extend beyond windstorm insurance; auto insurance fraud has become a serious problem in Florida. Con-men, unscrupulous doctors, swindlers, and ambulance-chasers have taken advantage of poor regulations under the state’s no-fault insurance laws to inflate personal injury protection (PIP) claims, stage accidents, and defraud insurers, resulting in increased costs for insurers and higher rates for policyholders.
While no-fault laws are intended to lower the cost of auto insurance by keeping claims out of the courts, and in many cases they achieve this goal. In most states, including Florida, no-fault laws require insurers to cover the injury costs of their own policyholders (first-party coverage) regardless of who is at fault. The Times Union editorial argues that with reasonable reform, this problem could save Florida policyholders from future increases.
“For years now, fraud has been rampant as scammers work with rogue doctors and lawyers, claims adjusters and others to stage accidents and pull off other tricks to collect up to $10,000 in personal injury awards as part of the state’s no-fault law.
This can be stopped with reform legislation, stronger regulation and enforcement.
Calls for repealing the no-fault law are misguided and should be ignored.
Failure to address this issue, though, will result in auto insurance rates increasing in this area as these problems migrate from South and Central Florida.”
