The insurance fix

Editorial Courtesy of The St. Petersburg Times

Published  January 23, 2007

In just seven days, Gov. Charlie Crist and the Florida Legislature crafted a more pragmatic approach to easing the property insurance crisis than the last governor and Legislature produced all of last year. The legislation approved Monday at the end of the special session should produce some measure of relief for Floridians who desperately need help. It does not coddle an insurance industry that too often gets its way in Tallahassee at the public's expense. It also recognizes that market-driven solutions to this crisis have failed and that the only alternative at the moment is for the state and its residents to assume more liability for damages after a major hurricane.

Exactly how far premiums would drop won't be clear for weeks, and the governor and state lawmakers may prove to be overly optimistic. What is clear is that the price of even modest rate relief now will be accepting substantially more risk following a significant storm with billions in damages.

The state will be calling the insurance industry's bluff. The industry refuses to make private coverage available and affordable because it says it can't accept the risk of catastrophic hurricane losses. So the state would offer up to $16-billion more in low-cost reinsurance to private insurers, doubling what is available now through the Florida Hurricane Catastrophe Fund. Insurers would be required to pass the savings on to policyholders, and we would find out if there is any reasonable incentive that will lure the industry back into the market. This is a more defensible approach than an earlier Senate proposal for the state to simply assume enormous risk and put the state's financial stability on the line. But the CAT fund has only a few billion dollars in cash, and it will have to borrow money and assess policyholders after a major hurricane.

Similarly, there will be a cost later to providing relief to the 1.3-million policyholders of Citizens Property Insurance Corp., the state's insurer of last resort. Lawmakers canceled rate increases for this year but left the door open for increases in 2008. They also broadened Citizens' ability to make assessments if it runs a deficit to include assessments on auto insurance as well as property insurance. The idea is to spread future pain as widely as possible and save borrowing costs. But it means many Floridians would get hit more than once and those who don't own property but own a car would pay as well.

Lawmakers struck an appropriate balance to other changes to Citizens. It no longer would be required to charge the highest rates since there is no competition in many areas. Where there is competition, Citizens would be able to write policies for property owners whose premiums from their private insurer are more than 25 percent higher. That is a reasonable threshold that should prevent homeowners from getting gouged but avoid a stampede to the state insurer. Citizens also would be able to offer full coverage to its 400,000 wind-only customers in coastal areas. State officials must first approve a business plan, and the goal is a 10 percent cut in premiums for those Citizens policyholders. The insurance industry is complaining, but these changes are necessary to stabilize Citizens and to give property owners more options.

There are other consumer-friendly aspects of the legislation. For two years, insurers would not be able to impose rate increases and ask for approval later. Claims would be paid or rejected within 90 days, and clear deductions would be offered for hurricane shutters and other efforts to harden homes. All this would make it easier for homeowners to navigate the insurance maze and see the benefits of accepting responsibility for better preparing for hurricanes.

The bill isn't perfect. It eliminates caps on deductibles and allows homeowners to forgo coverage of contents or windstorm damage. While most mortgages probably won't allow such recklessness, there is a risk that Floridians desperate for premium relief will find themselves in deep trouble after a storm. To meet one of Crist's simplistic campaign pledges, lawmakers required insurers who sell property insurance in other states to sell it in Florida if they want to sell auto insurance here. At least that provision doesn't take effect until next year, allowing time to assess the damage that might do to the auto insurance market.

Insurance is always a work in progress, and there will be more changes. It will take time to evaluate the impact of this legislation and the industry's response. But Crist, Chief Financial Officer Alex Sink and state lawmakers worked in a commendable bipartisan effort to develop a reasonable response to the state's top issue. It creates additional risk down the road but does not mortgage Florida's future. The best remedy for this crisis, though, remains the same: Another hurricane-free year.