Following the passage of recent insurance legislation, I wrote an op-ed piece for the St. Petersburg Times noting that Floridians are now a Hurricane Katrina away from financial disaster. Recently, the St. Petersburg Times and Miami Herald have run stories finding that our elected politicians have also come to the same conclusion.
The July issues of both the Florida Underwriter and a supplement to Business Insurance ran cover stories detailing the problems of Florida’s resolution to its insurance rate crisis.It is curious how many politicians seemed to put off the "day of reckoning" realization. The growth of Citizens and the immediate demands of their electorate to reduce insurance rates seemed a far smaller problem in the winter than a hurricane which may or may not happen until sometime in the future. With hurricane season here, the realities are upon them and the folly of the new legislation is obvious.
No one can change the financial outcome of a hurricane now. Florida has rolled the dice, assuming we are lucky this season; the significant issue is what we are going to do about it in the coming months. How about we start by reducing the size of the bet? Currently, Citizens is reported to insure more than $400 billion of property risk, with the probable maximum loss exceeding their surplus by $20 billion or more. Instead of being an insurer of last resort as it was thought of until 2004, the new mandate is to compete; this has to stop.
Citizens is a governmental entity that is charging below market rates or rates it acknowledges are not actuarially sound. In a free market country, why are we allowing the government to unfairly compete? This is all the more surprising since it was a Republican legislature that pushed this measure, providing a governmental entity with an unfair advantage over private insurers. If Citizens goes broke because its rates are too low or its capacity is not enough to pay claims, it merely charges everybody in Florida for its debt. No private insurance company enjoys such a bankroll.If a private insurer operated like that they would be financially ruined.
As a result of this expansion and unfair competitive advantage, many private insurers are leaving our market. Karl Marx and socialists everywhere would be proud of the current legislative mandate for Citizens. The government has no business "competing" with private insurers. No other industry has such governmental competition. All that having been said, it seems that the first step to getting us out of this financial mess is to stop expanding Citizens.