Florida's new governor, Charlie Crist, who is no friend of the insurance industry despite being a Republican, has signed into law a hodge-podge bill designed to save a devastated property insurance market, but which will no doubt end up doing far more harm than good in the long run.
As reported by our own Matt Brady, the bill, approved by the legislature this week at the end of a short special session, aims to lower rates by allowing carriers to buy reinsurance directly from the state's cat fund at below-market rates–provided they pass the savings on to policyholders.
Indeed, carriers must return excess profits to consumers–with "excess" determined by the Office of Insurance Regulation. Good luck to carriers with that!
The big problem is that the state fund, Citizens, is pretty much going bare, with the taxpayers of Florida serving as the reinsurer of last resort. Rather than assess policyholders to build up a reserve of some sort–which would have been seen as a tax increase–lawmakers, as Frank Nutter, president of the Reinsurance Association of America put it, adopted a short-sighted "pray now, pay later approach" that mortgages the future of Floridians."
Indeed, Floridians become something like the old Names of Lloyd's–those individual investors who faced unlimited liabilities should the worst-case scenario occur. If Florida is hammered again–and it will be–taxpayers in the state could be on the hook for billions.
Of course, there were alternatives, but Florida lawmakers didn't have the political guts to accept reality and truly represent the long-term interests of their constituents. Tougher building codes, more strictly enforced would help. As would the ability to charge risk-based premiums. Anything less discourages insurers from going anywhere near the hurricane-prone state.
We have heard the calls for help from Floridians suffering from high insurance rates, Gov. Crist said. With this legislation, the powerless have become the powerful, and the credit goes to the people of Florida for letting their voices be heard.
Nice rhetoric, but right out of "Alice In Wonderland." Is it the industry's fault that Florida is hurricane prone? That its buildings are inadequately constructed to withstand regular storms? That everyone and their grandmother are racing to build more and more homes along the most vulnerable coast in the country?
Insurers earn profits for one year, and all of a sudden they are profiteering? Gov. Crist on Jan. 17 declared that "nobody got a refund when we didn't have a storm." Of course they didn't. I don't recall any Florida lawmakers calling for surcharges against old policies to help insurers pay for 2004 and 2005 storms. That's the way the system works–the only way it can work if a viable private market is to be maintained.
The scariest part is that Gov. Crist says the new statute is only the first stage of insurance reform in the state, noting that the legislature is due to meet for its regular session in March. We may not have seen the worst out of Florida.
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