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New Ideas Could Bring Sound Hurricane Coverage

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The Tampa Tribune

Published: January 12, 2009

It's a terrible time to have to think about raising property insurance rates, but a task force set up to make Citizens Property Insurance Corp. the homeowners' insurer of last resort as it was originally intended to be has little recourse.

The group will recommend allowing the hybrid company - a quasi-governmental entity and the largest property insurer in Florida - to raise its rates for the first time since 2006. And if the Florida Legislature agrees, as it should, rates would rise by 10 percent a year on average statewide for three years. Rates in some areas, such as along the coast, could rise as much as 25 percent in a year. But current rates are being kept artificially low to ease the pain of homeowners. Even if the higher rates are adopted, Citizens' prices would be lower than is fiscally prudent.

The rate increases, while regrettable, are necessary because Citizens' rates are not high enough to build the reserves necessary to pay claims should a major hurricane strike the state. And that puts Florida taxpayers at risk.

Citizens' million-plus policies carry some $412 billion in potential risk to property owners statewide. If a once-in-a century storm hit, everyone, not just Citizens' policyholders, would receive additional insurance assessments to bail the company out.Already, homeowners are paying assessments to cover the eight successive storms of 2004 and 2005. And as painful as an increase would be to Citizens' policyholders, the cap should shield them from a much sharper - and justifiable - rate increase. Bruce Douglas, the former head of Citizens and chairman of the task force, says the company would need a 30 percent rate increase to become fiscally sound today.

And if Douglas is right, it raises the question whether the state's dependence on Citizens makes any sense.

True, the manipulation in pricing by Citizens has enabled its policyholders to pay lower rates - a benefit to individual homeowners but a risk to all property owners statewide.

Moreover, even though some private companies have entered the market and removed some 400,000 policies from Citizens, it's unclear those companies could pay the necessary claims in the event of a storm, and certainly the market for hurricane insurance is not competitive.

There has to be a better way. State leaders need to encourage innovative solutions.

A St. Petersburg group set up by former state Rep. Donald R. Crane Jr. has proposed taking hurricane premiums away from insurance companies and Citizens and holding the money in reserve in a state-run entity, the Florida Mutual Hurricane Fund, that could pay out claims in the event of a catastrophic storm.

This entity would determine premium rates that would be passed through the primary insurers. As pointed out by the St. Petersburg Times last June, the program would work like federal flood insurance except the private insurers would not hold the premium dollars.

In theory, premiums would be lower, and private insurers would want to come back into the property insurance market. Without having to insure for hurricane damage, those companies could stick with fire and theft and other more predictable coverage.

Over 20 years, the group estimates it would collect $200 billion in premiums - more than enough to cover several storms - and premium prices could drop as much as 27 percent.

And if a storm hits beforehand? The group proposes getting a loan from the federal government. Of course, that proposal was made before the government started bailing out the world.

Lawmakers should be willing to study the group's proposal, indeed any proposal that promises a better way of providing affordable, fiscally responsible hurricane coverage.

In the meantime, however, the Legislature must understand Citizens' pricing no longer reflects a credible valuation of the risk to keep Citizens solvent in the event of a storm. To protect the taxpayers, lawmakers must support a rate increase.
Property owners with Citizens won't like it, but consider how voters will feel if they are burdened with huge assessments in the aftermath of a monster hurricane.

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