Florida's insurance scam

If an insurance company sold you a homeowner's policy knowing that, if disaster was to strike, it probably couldn't pay your claim, you would call that "consumer fraud" - plain and simple. If private insurance companies were to instigate such a scam, the insurance commissioner would be the first to step in and halt these insolvent business doings, even going so far to working to put these crooks behind bars. At least, that is what the public expects.

But when Florida's state-operated homeowners' insurance company, Citizens, sells you a policy knowing that it may not have the financial reserves to cover your claims should a major catastrophe occur, what would otherwise be considered a fraud is just business as usual. The fact is that Citizens is selling policies to Floridians at predatorily low rates - rates so low it may not be able to pay claims should a major catastrophe occur. Ironically, however, the scheme under way in Florida is occurring with full knowledge and consent of the state insurance commissioner and key state policymakers.

Unlike private companies, when the government can't cover its costs, it does not go out of business; it just finds ways to tax someone else. So it is for Citizens. Unlike real businesses, Citizens' financial shortfalls are made up by charging "assessments" to all of the remaining homeowners, auto, boat, motorcycle and business insurance policies - including policies of competing private insurance. The bottom line is that well-managed and financially solvent private companies cannot compete against state-sanctioned and subsidized operations.

It means a slow death of the private insurance market, but a painful and costly one for consumers. As Citizens grows and charges the customers of private insurers for its financial misdeeds, more customers leave for Citizens, which pushes private insurers out of the market and increases the market share of Citizens.

It's an endless cycle. It's the public option. But the scheme will soon leave Citizens fewer privately served citizens to level its assessments upon and leave Citizens as the state's high-cost monopoly.

The scheme also means that premiums will eventually have nowhere to go but up, since the subsidy is not sustainable. That is the fraud being perpetrated upon Florida's consumers. It's a bait-and-switch - a promise for low (industry-subsidized) coastal rates today, but tomorrow everyone will pay much more.

Setting predatory rates has encouraged overdevelopment of coastal properties, which (over time) has put more lives and property at risk, reduced natural storm barriers and led to even much higher average insurance premiums for consumers.

Selling property insurance without adequate financial backing to pay claims is just consumer fraud, but the only difference is that those entrusted to protect Florida's citizens are behind the scheme.