R Street Institute welcomes Florida lawmakers’ call for insurance reform
TALLAHASSEE, Fla. (June 20, 2012) – The R Street Institute today welcomed a position paper from Florida state Sen. Garrett Richter, R-Naples, and state Rep. Bryan Nelson, R-Apopka, that spells out needed reforms for Citizens Property Insurance Corp., the Florida Hurricane Catastrophe Fund and the Florida Insurance Guaranty Association.
In the paper, Richter, who chairs the state Senate Banking and Insurance Committee, and Nelson, chair of the state House Insurance and Banking Subcommittee, call on their fellow lawmakers to pass real reforms that transfer the tremendous concentration of catastrophe risk currently borne by Florida taxpayers to the private sector, even though that will certainly mean higher rates for many Florida consumers.
“We can’t move Florida, can’t control the weather, and apparently, can’t control the market to make it viable,” the lawmakers write. “Something different needs to be done and it needs to be done soon.”
Proposals to address the problems faced by both Citizens and the Cat Fund were put forward during the 2012 legislative session, but no serious reform plans made it to Gov. Rick Scott’s desk. Citizens, which currently insures about a quarter of Florida property owners, continues to charge rates that are roughly 40 percent below what actuaries estimate are needed.
The Cat Fund, meanwhile, estimates it has $15.5 billion of claims-paying capacity, including $7 billion of post-event bonds that would be repaid with surcharges on nearly every policyholder. Its total liability is about $17.3 billion, which could leave it with a $1.8 billion shortfall in the event of a major storm.
Robin Smith Westcott, head of Florida’s Office of the Insurance Consumer Advocate, recently noted that even a 1-in-25 year storm is likely to generate assessments for the Cat Fund and would exhaust most of the cash resources of Citizens. A 1-in-100 year storm, which would result in residential losses of about $50 billion, would cause Citizens, the Cat Fund and FIGA to deplete all their reserves and would require more than $25 billion in assessments to pay claims.
“Florida’s property insurance market faces an unsustainable situation that will eventually cause greater damage to the state’s economy than any gradual, methodical increase in rates,” R Street Florida Director Christian R. Cámara said. “Sen. Richter and Rep. Nelson understand this, and although the Legislature failed to enact meaningful reform during this year’s session, their efforts to raise awareness about the risks associated with the current system should give Floridians hope for next year. We can only hope that won’t be too late.”
R Street is a non-profit public policy research organization that supports free markets; limited, effective government; and responsible environmental stewardship. It has headquarters in Washington, D.C. and branch offices in Tallahassee, Fla.; Austin,Texas; and Columbus, Ohio. R Street’s co-founders previously were the staff of the Heartland Institute’s Center on Finance, Insurance and Real Estate. Its website is www.redesign.rstreet.org.
