Nobody wants to pay any more than they have to for anything and, unfortunately, Florida lawmakers have discovered they actually have the ability to manipulate and control the insurance industry and its rates. Last year they gave consumers a rate reduction through the state-run Citizens Property Insurance Corp. This year they raised rates, but it is an election year so they did not raise them a lot. Next year they are going to raise them more (maybe?).

Meanwhile, Nationwide decided to leave Florida; Allstate decided to get smaller; State Farm was leaving — now they're staying — but not totally.

We haven't had a hurricane hit Florida in over four years, yet insurance companies are failing in frightening numbers. Pressure from the people may have driven political leaders to suppress rates but the responsibility to provide balance to what people want versus what makes sense falls in the hands of the regulators, in this case the Office of Insurance Regulation (OIR).

The Free Market Does Not Exist in Florida

In 2009, experts at the Competitive Enterprise Institute and the Heartland Institute said this about the regulation of insurance in Florida: "A free market for homeowners' insurance does not exist in Florida. Instead, a state-run agency, the Florida Citizens Property Insurance Corp., serves as the state's largest property insurer. Florida's rate regulatory system is one of price control. Currently, Florida limits all insurance rates to Citizens' rates plus 15 percent. The state's burdensome prior-approval process and wholesale government interference with the rate-setting process has led most major insurers to withdraw or cutback policy-writing in the Florida market. States with less-regulated insurance markets provide more consumer choice, more predictable rates, and insurance premiums that better reflect actual risk than do states with heavily regulated markets."

Rate suppression has gone on for so long that legislators finally became worried about the ability to pay claims when the big storm hits. They decided to use the Florida Hurricane Catastrophe Fund as a safety net. Now a potential shortfall of somewhere between $11 and $19 billion exists. Unlike the Federal Reserve, we can't print money, so guess where it comes from? Right, assessments on other policies.

This isn't a surprise to our legislators. They actually realized what they did last year but could not figure out how to undo their own foolishness so they decided to "gradually" reduce our exposure. Now, as long as we don't get a major hurricane in Florida for the next 10 years, we may actually escape this problem.

I am sure someone will dispute my figures. Maybe it's not actually $11 billion or maybe it's not actually 10 years but the exposure is BIG and it is REAL and it will last for a while.

Despite the continuing desire to suppress rates in Florida, some are starting to wonder what the role of the insurance commissioner has been.

Florida State Sen. Mike Bennett (R-Bradenton), expressed his opinion in writing to several media outlets: "Last year, while testifying before the Cabinet, [Insurance Commissioner Kevin McCarty] either lied (or at least hid the truth) when he testified as to the health of the new companies opened in Florida. He neglected to inform the Cabinet that several of those companies of which he was so proud had already gone out of business. He has a habit of saying whatever he thinks his boss wants to hear. Over the last year, it has become more and more evident that Commissioner McCarty is NOT serving the residents of Florida in any beneficial way and that the insurance markets in Florida have become weaker and more vulnerable under poor leadership and as a result of his unsound policymaking."

Troubles Are the Result of Years of Ineffective Oversight

I am sure if we looked deeper into the finances of every insurance company operating in Florida we would be shocked to see how many others are on the brink. Although it has always been the responsibility of the OIR to monitor the financial strength of companies in Florida, concerns have only recently escalated about how fragile so many of these companies are. We are supposed to believe this just happened; that it's an anomaly. It makes more sense to believe that what we are seeing today is the culmination of years of ineffective oversight.

What exactly is the role of a regulator? In its broadest sense it is to protect the interests of the citizens it represents. For the insurance commissioner, that role extends beyond the usual "monitoring" responsibilities and should include advice and counsel on insurance matters to our political leaders. Because we almost never see or hear any pleas from OIR to those leaders about where they're taking the insurance industry, we have to believe they are either approving of that direction or, worse, even proposing what has been done. Somebody somewhere in a position of responsibility needs to step up and call for an end to this madness.

It is possible we have manipulated insurance in Florida past the point of recovery but that should not stop us from trying. Ultimately we have to question if we even have the ability or the will to solve this problem. The number of insurance company failures over the past few years is indicative of a real problem and we have been in denial for years about why virtually every major insurance company in the country has either walked away or seriously restricted doing business in Florida.

Time to Face Some Hard Facts

We need an insurance commissioner who understands the dangers in trying to alter the laws of probability and has the courage to stand up to his bosses and tell them when they are wrong.

We need an insurance commissioner who will openly communicate to the public the reality of why insurance in Florida is likely to cost more and why arbitrary rate suppression doesn't work.

We need to face the fact that a free and effective insurance market in Florida will never exist as long as we attempt to make Citizens an attractive alternative.

For all of those who argued against the federal government's desire to create a public option for health insurance, there have been few complaints about a public option for homeowners' insurance in Florida. Actually, we've gone a step further — we have a public option with no private option.

Mark O'Connell is CEO of PIA of Florida. He may be reached at oconnell@piafl.org.

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