Property insurance gamble: Florida Risks its Fiscal Future on a Quiet Hurricane Season

One simple fact ought to dominate every discussion of Florida’s homeowners’ insurance system: Were a single storm to hit the wrong area, it would literally bankrupt the state. Gov. Charlie Crist and the Legislature, quite simply, have risked Florida’s fiscal future in order to subsidize insurance rates for people living in coastal areas. As it has for more than a decade, Florida’s homeowners’ insurance system stands on three Unsteady legs: the private insurance industry, the Florida Hurricane Catastrophe Fund (the Cat Fund), and the Florida Citizens Property Insurance Corporation. Understanding how the system works — and how the Legislature failed to change it during its 2008 session — can help indicate how Florida could move towards a workable, sustainable property insurance system. Through a series of misguided reforms culminating in a disastrous January 2007 insurance reform bill, Florida has created the nation’s most hostile environment for the private homeowners’ insurance industry. Rather than setting their prices based on market forces, insurers need to seek approval from the state every time they change their prices. Any challenge to state regulators — who have not historically needed to document their claims — requires expensive, long-drawn-out legal battles. As a result, prices often have no relationship to actual risks: inland Floridians pay too much for property insurance while those on the coasts pay too little.