Insurance, again

Solutions require state's bold action

Editorial Courtesy of The Daytona Beach Journal

Published  December 8, 2006

Florida lawmakers know what they should do to repair the state's troubled property insurance industry. And the insurance company executives know it, too -- which is why they might be getting nervous as a planned January special session approaches.

After all, governor--elect Charlie Crist ran on a platform that included get-tough measures that could restore a measure of fairness to an industry that has thus far been catered to. Bill McCollum, the incoming attorney general, and Alex Sink, the incoming chief financial officer, also expressed displeasure with many of the breaks extended to insurance companies over time.

A three-day meeting of House members that ended Wednesday produced much discussion -- incoming Speaker Mario Rubio deserves credit for opening up the issue to any solutions. And, for once, legislative leaders aired the notion that they might have been a bit too kind to companies in the past, lavishing them with incentives not to leave the state.

But will that resolve carry forward into the January session? For the sake of those who live and operate businesses in the state, the answer should be yes. If lawmakers are serious about insurance reform, however, they'll look past immediate issues -- such as the need to squash an average 56 percent rate increase considered Thursday by the board of Citizens Property Insurance, the state's insurer of last resort that provides storm-damage coverage to 1.3 million Floridians, including thousands of Volusia and Flagler county residents. Citizens' board delayed its vote, giving lawmakers time.

The Citizens fix -- changing the formula that requires such massive rate increases -- should be easy. But the Legislature can't really solve the broader insurance problems without making some tough decisions.

Lawmakers should start by helping Crist keep his campaign promises. Crist targeted two major loopholes benefiting insurance companies: the ability of national companies to set up Florida-only subsidiaries that bear all the risk for hurricane-related damage, but transfer profits out-of-state; and the insurers who cherry pick Florida's lucrative auto and life insurance markets but don't write property insurance, even though they cover properties in other states.

Before the Legislature grants any more favors to companies -- like a proposal that would allow companies to dip into the taxpayer-backed catastrophic fund to a greater extent than they previously have -- they should look at these two provisions and how they've driven up rates in the state. Legally speaking, cherry picking is a more difficult problem to solve, but the attempt is worth it if it lowers rates.

Lawmakers should be skeptical, however, of one Crist-favored proposal that would allow higher deductibles in exchange for purportedly lower premiums. There's little evidence that a tradeoff would benefit property owners, and deductibles are already higher than many people realize -- up to 5 percent of the value of their house. Higher deductibles might make policies virtually worthless -- especially for homeowners who are hit twice during the same year.

Insurance companies argue that they're facing massive risk in Florida, and they're right. The hectic storm season of 2004, which steered clear of the state's biggest metro area yet still caused $17.5 billion in damage, proves as much. However, state lawmakers should recognize that skyrocketing insurance rates pose just as big a threat to Florida's overall economy -- and that the state's track record of placating insurance companies with taxpayer-funded giveaways has done little to keep rates down.