Citizens Property Insurance Corp.’s new Chief Executive Officer Barry Gilway deserves credit for his honesty in highlighting the need for higher rates. (“New Citizens Leader Suggests Breaking 10 Percent Cap on Rate Hikes,” 6/27/12)

Because state law caps Citizens’ rates to increases no greater than 10% per year (known as the “glidepath”), private insurance carriers simply cannot compete in Florida. Citizens has the ability to levy enormous assessments (or taxes) on almost every type of insurance policy to make up for any cash shortfalls after a bad hurricane season. Private insurers do not have this luxury–they simply must have enough cash reserves or reinsurance coverage to meet their obligations upfront, as the law requires.

Nobody wants to pay more for insurance, but the current system is unsustainable. Eventually, the state’s economy will take an enormous hit if Citizens has to levy massive taxes to pay people’s claims after a bad hurricane season.

As such, Gilway is right to favor a gradual, moderate approach to getting Citizens’ rates to where it can cover its own obligations without having to tax everyone. An “accelerated glidepath” whereby the current 10% rate cap increases gradually each year until Citizens charges adequate rates is a possible solution. This would allow consumers time to adjust, strengthen Citizens’ finances, and give predictability to the insurance market, thereby attracting more private companies to do business in Florida to provide more consumer choice.

Christian R. Cámara

Florida Director

R Street Institute

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