Fixing Florida's Insurance Mess

Fixing Florida's Insurance Mess

Lehrer op ed in The Tampa Tribune
May 18, 2007

<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

If <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Tampa Bay area residents don't like Florida's property insurance environment, they only have to wait. Things will get worse. With Gov. Charlie Crist's leadership, the Legislature has so damaged Florida's insurance markets that it now seems only federal laws opening the state's market to outside competition can help the state's residents in the long term.

Quite simply, the package of insurance "reforms" will accelerate the collapse of both state-controlled Citizens Property Insurance Corp. and much of Florida's private insurance market over the next decade.

Indeed, the withdrawal of private companies has already started. Despite laws that make it virtually impossible for them to leave the state altogether and additional recent "reform" to forbid the creation of new Florida-only subsidiaries, companies like Allstate, USAA, Nationwide, Travelers and The Hartford have already cut back on writing new policies in Florida.


While Citizens has already emerged as the largest player in Florida's homeowners' market with 20 percent of all policies, the new laws will likely put more than half of homeowners under the quasi-government insurance carriers' umbrella. With Citizens now able to write policies for anyone who receives a quote 15 percent above government-determined price levels, many private insurance companies won't be able to compete.


As structured, the system simply cannot work. Consider this: Since Hurricane Andrew hit the state in 1992, insurers lost money writing property policies along the Gulf Coast all but three years. The Tampa Bay area's ultra-competitive market resulted in more than its share of losses. Insurance companies, by design, make money through investment activities rather than insurance. And, as a quasi-government entity, Citizens can't invest the way private insurers can. Thus, it will lose money almost every year.


Taxpayers have already had to bail out Citizens twice. When a big storm hits, Citizens will have to raid the public treasury again and place special assessments on its policy holders. One consulting firm has estimated that the bill could run as high as $14,000 per Florida household. And storms will hit. Nearly all meteorologists agree that we're in the midst of a cyclical period of heavy hurricane activity. In short, the current round of "reforms" just can't work.


Thus the best hope for fixing things and providing Floridians with sustainable, affordable homeowners' coverage now lies outside the state's borders. In the next few weeks, New Hampshire Republican Sen. John Sununu and South Dakota Democratic Sen. Tim Johnson will propose a new law to let insurance companies do what banks can and organize themselves under federal rather than state laws.


In the past 10 years, free banking competition across state lines has resulted in cheaper mortgages, free checking accounts, a plethora of new banking options and higher interest rates for consumers. It's difficult to know what, if anything, will eventually emerge from Congress in the way of new measures to promote insurance competition. A bad federal law could make things worse. But the very prospect of real national reform could well save Florida's insurance industry for the future.


Under the right system, Floridians would see enormous benefits. Private companies that have cut back on writing policies rather than face regulations that dictate everything from prices to customer communications would reenter Florida under a properly structured federal regime. They would expand choices without imposing massive costs on Florida taxpayers the way Citizens does. Although nothing can save Citizens in its current form, increased entry of private firms would reduce the size of its next bailout. And, for those convinced that Florida's system can somehow work, nobody who favors a federal law would stand in the way of continued operations for Citizens or continued regulation of companies that don't go the federal route.


Broader competition across state lines would move Florida away from its unsustainable system. In the end, the state's consumers would win.