Head-in-the-Sand Response Won’t Work for Florida Property Insurance

As the 2008 legislative session begins and hurricane season approaches, Florida’s businesses and homeowners continue to struggle with the increasing cost of property insurance. The quest for answers to the state’s property insurance crisis has turned into a political tug-of-war, but, as the rhetoric escalates, a few familiar names seem to be left out — Andrew, Ivan, Jeanne, Frances, Charley, Katrina and Wilma. These seven storms, all of which hit Florida, are among 10 of the most expensive hurricanes in U.S. history.

The truth is, hurricanes are the real enemy. Experts and risk modelers say Florida is one of the most catastrophe-prone states in the nation. Despite this knowledge and the reminder of several costly hurricane seasons, we continue to support a property insurance system that remains unprepared to handle hurricanes.

The current pay-later approach is fiscally irresponsible. It is a path of debt-financing that created Citizens Property Insurance Corporation, a growing state-run insurer offering cheap insurance—whose insufficient rates cannot cover claims resulting from even a moderate hurricane.

It has also left our state’s Catastrophe Fund substantially underfunded. In 2007, the Catastrophe Fund, which helps insurance companies reimburse claims after a storm, had $2 billion in reserves to cover $28 billion in potential losses.

Our current system threatens the stability of our jobs, our economy and the state’s overall business climate. This current system means greater insurance costs for Florida’s businesses and families. If a single storm impacted our state this year, families would spend the next 10 to 30 years paying anywhere from $1,700 to $14,000 in additional insurance costs.

Hurricanes are a fact of life in Florida. The Florida Chamber of Commerce has identified two long-term solutions and savings plans that are capable of withstanding even multiple storms without excessively taxing Florida families and businesses.

One option is for the Legislature to approve a proposal by Chief Financial Officer Alex Sink that reduces the state’s risk in the Hurricane Catastrophe Fund. CFO Sink’s proposal could save Florida taxpayers and businesses $5 billion in property insurance assessments over 30 years.

Another solution that could deliver property insurance savings is Senate Bill 1422 by Senator Mike Bennett and House Bill 1001 by Representative Garrett Richter. Their proposal would lower insurance costs for businesses by allowing commercial property owners to select insurance policies that cannot be charged additional costs if the state-run insurer experiences a deficit.

To lower insurance costs and improve the property insurance marketplace in Florida, our state needs all interested parties — lawmakers, insurers, regulators and the business community — working together to find long-term fixes that take into account the realistic inherent risk and exposure in Florida.