Let market determine our insurance rates
Twenty years ago today, Hurricane Andrew — at the time, the costliest storm in U.S. history — made landfall near Homestead.
Andrew ended a 20-year period of modest Atlantic storm activity, during which many newly arrived Floridians remained oblivious to the enormous threats the state faced.
Today, it’s wise to look back and see how, and if, the state has adapted to the risks that Andrew made manifest. A careful look reveals that neither private insurance nor government subsidies can solve the geographical problems Floridians face.
Residents will simply have to adapt to these acts of nature. Not even efforts to combat climate change on a global scale would change the fact that Florida is a low-lying peninsula in the middle of one of the world’s most active areas for severe weather.
Florida’s state and local governments have failed in getting voters to face this reality. While stronger building practices have made newer homes among the most hurricane-resistant in the world, the rest of Florida’s public policy has actually done harm. Under the influence of building and real estate lobbies and their own desire for growth, state and local governments continue to provide subsidies that encourage construction in hurricane-prone areas and along once-wild coasts.
Insurance-related public policy has done even more harm. Rather than ask individuals and businesses to pay the real costs of living in dangerous areas, the state has instead pieced together a haphazard subsidy and regulation scheme that boosts rates in safer areas while subjecting everyone in the state to the risk of huge tax assessments following a major storm, all for the sake of holding insurance rates down. This Rube Goldberg-like contraption of interlocking subsidies and price controls hasn’t made insurance cheap in Florida. But it has forced nearly all major insurance carriers to stop writing new policies in Florida’s coastal areas. It also has left most of the state’s residents stuck with thinly capitalized local insurance companies that might default or, worse, with the state-run Citizens Property Insurance Corp., whose liabilities are ultimately shared by taxpayers.
The insurance industry deserves a fair share of the blame. Some companies hurt everyone’s reputation by refusing to pay clearly legitimate claims, while others went bust due to corruption and mismanagement. Some of these problems were avoidable. Florida never should have put taxpayers on the hook for subsidizing insurance claims and pay-outs, and insurers obviously should have paid their claims in full. But others stem from a simple denial of reality.
No public or private effort will make the real costs of Florida property insurance inexpensive. Over time, the risk of more events like Andrew means that everyone’s rates must rise. Property owners should be able to develop their land in almost any way they see fit, but the stream of subsidies for roads, beach upkeep and destruction of coastal wetlands must end. It’s almost certain that this will cost jobs in the state’s already troubled building sector, but the state simply doesn’t have a choice. Encouraging coastal habitation is more dangerous and more expensive than developing inland, and will only encourage insurance rates to rise for most of the next decade.
It isn’t a happy situation but, 20 years after Hurricane Andrew, it’s time for Florida to face reality.
