Webster's Dictionary defines a demagogue as "a leader who makes use of popular prejudices and false claims and promises in order to gain power."
In 2007, the Florida Legislature succumbed to the popularity of new governor Charlie Crist and adopted the self-proclaimed "People's Governor's" plan for lowering homeowners' insurance rates and property taxes. I lobbied against that bill, trying to explain the peril it was going to create for the Florida property insurance market. I was unceremoniously educated on how things worked in Tallahassee. It was explained to me that Crist had run on a platform of lowering homeowners' insurance rates and property taxes, and that it was quite clear that everyone had to get on board. The people had been told what they wanted to hear, and their desire to be served was clear.
You do not have to search very far to find quotes from 2007 talking about how rates were going to "drop like a rock." The people loved hearing it. Many also loved hearing the People's Governor later say that he was glad that State Farm wanted to leave Florida because it had "some of the highest rates in the state anyway."
Try telling that to the homeowners who are now finding rates double what they were paying before — if they can find coverage at all. Common sense should tell anyone that companies do not walk away from profitable markets, yet most highly capitalized carriers have begun walking away from Florida.
Left With No Choices
This year the Florida Legislature, trying to undo what was created by populism in 2007, passed a Consumer Choice Bill. It simply said that highly capitalized companies could charge whatever rate they wanted in Florida. Imagine that — unregulated competition. If a company charged a rate that a consumer believed was too high, he could move his business to another carrier. The governor vetoed that bill, fearing an environment where companies could charge what they wanted. In other words — we don't want competition in our insurance market.
Does the People's Governor think the people are helpless and stupid? Does he think the people of Florida cannot make their own decisions? Many consumers would pay a higher rate to be with State Farm or a company of their choice if given that option. But the People's Governor has taken away the people's choice. It appears that consumers will be forced to do business in a market where the question changes from Who do I want to be insured with? to Where can I get insurance — any insurance?
The simple fact of the matter is that there is not proper capacity in the Florida property insurance market to handle the exposure that will be left when State Farm pulls out. That will place pressure on properly capitalized companies that have tried to be loyal to the Florida market and force more homeowners into Citizens or lesser-capitalized companies that are trying to fill a void.
People were told in 2007 what they wanted to hear. Never mind if it made sense or if it was responsible. The People's Governor pushed the feel-good agenda and the Legislature jumped on board. Empty promises were made, and the governor basked in fat poll numbers.
Fast forward to today. The Florida Hurricane Catastrophe Fund — the vehicle that was used to force rates down — is short billions of dollars if a hurricane hits. Crist has traveled to Washington with the people's hand out begging for help, declaring that we are not asking for a handout, only a potential loan guarantee — a loan for which the people will be on the hook.
Crist shared the following with the Florida Cabinet: "I'm relatively optimistic that we'll be able to be successful with what I believe to be the most attractive option. Even if there isn't some kind of formal acknowledgement by Treasury or the Congress, the reality is the federal government comes in anyhow, we all know that eventually."
Well, the federal government is running low on ink for that greenback printing press, and as a lifelong Florida resident, I know that it is not if a hurricane hits Florida, it is when.
Gov. Jeb Bush used to preach a culture of preparedness regarding hurricanes. We now seem to have a culture of ducking reality.
We must demand more of our elected officials. As consumers, we must take the time not only to listen to their words, but also to hold them responsible for their actions. When explaining his veto of the consumer choice bill, Crist proclaimed that 40 new companies had brought $4 billion of new capital into the Florida property insurance market.
After a request by CFO Alex Sink, Insurance Commissioner Kevin McCarty had to disclose that actually only $607 million of new capital had been brought into the Florida property insurance market since 2006. That would last for about the first 60 minutes of a major hurricane. The St. Petersburg Times recently asserted that 93 percent of the $4 billion of capital comes from unregulated surplus lines carriers that write little homeowners' insurance in Florida.
Will we, the people of Florida, grow tired of demagoguery? Maybe, maybe not. Some enjoy being told what they want to hear, even if it isn't true.
Tom Cothron is the immediate past president of the National Association of Insurance and Financial Advisors-Florida.
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