On insurance, go for bold

A St. Petersburg Times Editorial
Published November 30, 2006

Gov.-elect Charlie Crist and legislative leaders made the right call on Wednesday to schedule a special session in mid January to tackle the property insurance crisis. That doesn't give them much time to come up with better answers than the Legislature did last spring, but homeowners and businesses can't wait any longer for relief. And while it is a complicated mess, two things are clear. First, the enormous rate increases proposed by Citizens Property Insurance Corp. for March and required by the new law must be repealed. And second, a conventional approach to luring private insurers back into the market is not going to provide immediate relief to homeowners and businesses staring at premium increases they can't possibly afford. It is going to be a challenge for the new governor and the Legislature to be less timid and more innovative, particularly after the insurance industry has poured millions of dollars into their campaigns.

This is a crisis so serious that it is hurting Florida's cooling economy and, along with property taxes, forcing some residents to flee to other states and businesses to ponder their own survival. A comprehensive response will have to move beyond quick corrections to pending rate increases and long-term mitigation efforts to make houses and businesses better fortified against hurricanes. Both are obviously needed, but they won't solve the crisis alone. The challenge will be to reassess conventional notions about defining the state's role in seeing that property insurance is available and affordable, offering incentives to bring back a private market that shows no interest, and spreading the risk and the costs associated with insuring against hurricanes that can devastate the state.

Of course, some things can't wait. When the Legislature convenes Jan. 16, the first order of business must be to repeal portions of this year's insurance bill that would trigger untenable increases in premiums for Citizens policyholders in March. Citizens, the state-run insurer of last resort, already will raise rates an average of 25.9 percent on Jan. 1 to keep them actuarially sound. But the 2006 law would require another of 55.8 percent increase for 400,000 Citizens policyholders with wind-only coverage. Bruce Douglas, chairman of Citizens' board, candidly says policyholders can't be expected to absorb that increase and wants the state to repeal it. He's right, and he could have added that the lawmakers' rationale for the rate increase is all wrong.

The new law requires Citizens to set its rates as though it would buy expensive reinsurance just as private insurers do. But Citizens hasn't bought reinsurance, and it can assess both its policyholders and policyholders of any insurance company if it has a shortfall after a major storm. This rate-setting requirement buried in the new law appears suspiciously like a ploy to unnecessarily jack up Citizens rates to give private insurers more cover to raise their own. But this is what happens when lawmakers pass complicated legislation on the final night of the session without knowing the practical effect. As the self-proclaimed "people's governor," Crist should lead the charge to head off this rate increase.

That's the easy part. The hard part remains finding an overall answer to this crisis. The Legislature and the state task force chaired by Lt. Gov. Toni Jennings are too dominated by insurance interests to be creative enough to develop solutions bold enough to meet the challenge. There is no indication that continuing to nibble around the edges will bring back a private market that shows no interest in assuming the risks posed by major hurricanes. For example, the Wall Street Journal reported this week how Allstate intends to sell more life insurance and annuities after it reduced its exposure to potential losses by dropping more than 210,000 Florida property insurance customers over 2005 and 2006.

"Between hurricanes along the East and Gulf coasts and earthquakes along the West Coast, it is an open question whether the private insurance industry will continue to insure the coastline at all," University of Pennsylvania economist Howard Kunreuther, a top authority on disasters, told the Los Angeles Times in another article published this week.

This underscores the challenge facing the state and the need for a more innovative response. Today marks the end of a mercifully quiet hurricane season after the pummeling Florida took in 2004 and 2005. But the property insurance crisis rages on, and when the special session begins in January the new governor and state legislators better be prepared to lock themselves inside the Capitol until they come up with some answers. Otherwise, Florida won't have to wait for a 2007 hurricane to see its residents and its economy suffer significant harm.