A few days back, Florida’s troubled Citizens Property Insurance Corp. announced a plan to “depopulate” its book of business through a program of loans to well-capitalized insurers.

On its surface, this idea has a few merits. Depopulation of a residual market is intrinsically useful. Among other things, its easy for Florida’s Legislature, insurance commissioner and governor to control and suppress the rates of a state-run insurer and much harder for them to force the private sector to do the same. Private insurers, in general, rely less on the state’s unworkable Hurricane Catastrophe Fund than does Citizens. Furthermore, this proposal, unlike past depopulation plans does appear to maintain sufficient solvency standards that the companies that take out policies won’t go bust right away. The insurers also have to take out the policies for a full decade.

Thus, I agree with my colleague Christian Cámara who wrote that this plan “arguably…deserves serious consideration.”

That said, the plan has serious flaws. If it is poorly administered, it could potentially make things worse by both reducing Citizens’ surplus and moving policies to the private market. Since only a certain number of insurers will be able to take part, furthermore, it has a whiff of crony capitalism.

Most importantly, however, it does nothing to address the fundamental problems in Florida’s insurance market: inadequate rates, implicit subsidies for  coastal development, and a broken Hurricane Catastrophe Fund. Under the terms of the proposal, private companies who take out Citizens policies will (at least for the first three years) have to abide by the same 10% cap on rate increases that Citizens does. Unless these problems are solved, take-outs amount to rearranging deck chairs on the Titanic.

So, no, the plan isn’t awful. It could improve things a little bit. But it’s very far from the sort of solution that Florida needs.

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