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April 24, 2009—The Director of the Insurance Project at the Competitive
Enterprise Institute today responded to comments from Office of Insurance
Regulation Commissioner Kevin McCarty about the Florida insurance market. “Kevin McCarty is,
in many respects, an excellent regulator,” says CEI Insurance Project Director Eli Lehrer . “But, in this case, a
lot of what he says is wrong, misleading, or simply false.” Responding to
McCarty, Lehrer argues the following:
to McCarty’s assertions, new firms have not entered the Florida Insurance
market in any significant numbers anytime recently. Since the current property
insurance environment was created in 2007, at least seven major national
insurers have either left the state or significantly cut back on writing new
business. New firms have entered the state but only five new firms—all of them
small—currently actively write new homeowners’ insurance policies for typical
dwellings. Only one firm has brought in
out-of-state capital to do this.
has stayed out of Florida
largely because the state’s practice of setting rates through the political
process has made it impossible for most companies to achieve an adequate return
on capital deployed in the state.
national and international reinsurance markets have the capacity and
willingness to take on the risk—if the price is right. In the long run, the
actual costs of private reinsurance will be lower than those of the hurricane
catastrophe fund. After the severe 2004 and 2005 storm seasons, reinsurers and
their capital markets competitors raised over $40 billion to support the
unprecedented surge in demand for reinsurance by primary insurance
> The Cat Fund does not have and, most
likely, never will have the capacity to cover the obligations it has taken on.
Following a major storm, it will likely collapse and require an enormous
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