Restoring Florida’s Insurance Market

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By the end of the 1990s, Florida’s property insurance market had largely recovered from the effects of 1992’s Hurricane Andrew, one of the costliest storms ever to strike the mainland of the United States. Property insurance was once again widely available and was generally regarded as relatively affordable.

In 2004 and 2005, however, Florida was battered by a series of damaging storms that resulted in huge losses for insurers. Moreover, some of the climate-forecast models suggested that the regions bordering the Atlantic Ocean and the Caribbean Sea were entering one of the periodic cycles in which there are relatively more hurricanes and tropical storms.

Meanwhile, thousands of additional homes and businesses had been built in Florida’s vulnerable coastal areas, and a real estate boom had caused the value of those properties to escalate. As a result, several of the insurers gauged their risks and made a business decision to reduce their exposure in Florida. Some did so by declining to renew existing policies. Others did so by deciding not to accept new policies.

As a result, property insurance coverage became harder to find and more expensive, angering would-be policy holders. Moreover, because mortgage lenders require their equity to be insured, the lessened availability and higher cost of property insurance threatened to cause further damage to a real estate market already slowing because of the convergence of several factors, including a rapid rise in property taxes.

Property insurance thus became a political issue in the 2006 election and, in January of 2007, Governor Charlie Crist and the Florida Legislature fashioned a political solution in which the state’s taxpayers were left to assume much of the risk for future catastrophic damage.

Nonetheless, many of the fundamental problems plaguing Florida’s insurance market have persisted, and some of the legislators who reluctantly supported the insurance legislation now recognize that much remains to be done to restore Florida’s insurance market. In this study, insurance expert Eli Lehrer, Senior Fellow of the Competitive Enterprise Institute, analyzes the current situation and recommends corrective solutions.