Citizens Insurance, our state-run "insurer of last resort," is an insurance company in the same way that the Washington Generals, the designated patsies for the Harlem Globetrotters, are a basketball team. The Generals dribble, shoot and run the court, but their designated job is not to win. So it is with Citizens. It issues policies, pays claims and does the things that insurance companies do, but in every way that matters, its designated role is to be dysfunctional, or mis-functional.
Citizens rates are a joke, set by political considerations, not by actuaries. It doesn't have to buy reinsurance, as do real insurance companies. It insures million-dollar waterfront homes, state-subsidizing wealthy people who could afford to buy surplus lines insurance in the real marketplace. It provides cheap "builders risk" policies to developers building in high-risk areas, an unwise growth subsidy.
Just as the Generals are part of the Globetrotters' punch line, Citizens' role has been to keep Florida's citizens smiling by offering them cheap property insurance.
The difference, however, is that when the Generals lose, the whole arena doesn't fall down.
Here in June, the start of Hurricane season, it's once again necessary to remind ourselves that when Citizens — and its bench player, the CAT fund, which is also undercapitalized — run out of reserves to pay claims, they get to impose surcharges on all kinds of insurance held by policyholders of all insurance companies, not just Citizens.
Remember that we're all still paying for Citizens' and the CAT fund's shortfalls after the hurricanes of 2004-05 — my own recent six-month auto policy premium includes a charge of $12.02 for "catastrophe fund emergency assessment." My annual homeowners insurance premium — I'm covered by a private insurer — includes several similar charges: Citizens emergency assessment: $45.01; hurricane catastrophe emergency assessment: $41.78. There's also a charge of $414.66 for catastrophe fund premium recoupment — the ongoing source of funding for the CAT fund.
All told, I'll pay $525.49 this year — $43.79 monthly. If I had a boat or a plane, owned a business or a farm, had a mortgage insurance policy or liability insurance, I'd be paying assessments on all those policies as well.
Those charges aren't backbreaking, but they'll go on until at least 2014. And most of them are 6-year-old legacies — if a decent-sized storm hits the state this hurricane season, there will be more assessments, size to be determined. These "assessments," of course, are really taxes: With Citizens, the Legislature, whose members never tire of repeating the no-new-taxes catechism, have devised a way to impose open-ended taxes indirectly, through our insurance policies, without leaving their fingerprints on the increases.
If I were an economic recruiter for another state, I would certainly take note of this state of affairs in competing against Florida. Gov. Rick Scott and the Legislature can cut the corporate tax rate to zero and toot the business-friendly horn as much as they like, but most businesses are not going to be comfortable moving or expanding somewhere where their insurance costs are completely open-ended.
Meanwhile, what does it say to prospective business recruits — and prospective residents — that the fourth-largest state in the country can't figure out a way to have
a real, functioning insurance market and is business- unfriendly enough that big, well-capitalized national insurers don't want to do business here?
Newspapers, for their part, have done a disservice in framing the insurance issue as some kind of Joe Sixpack vs. Big Bad Insurance Company story, with cheap insurance implied as some kind of entitlement. The fact is that using cheap property insurance to subsidize growth has been de facto state policy since before Hurricane Andrew — people who worry about ineffective growth management laws and regulations may want to consider the proposition that actuarially sound insurance rates might be the most effective — and fairest — growth regulator anybody could come up with.
Citizens was meant as a temporary measure and needs to be put on a steeper glide path to extinction. The most aggressive path would be to move toward a free market where insurers would be free to set market-based rates, with the state making sure they were adequately capitalized. Another strategy would be to carve windstorm insurance out of the homeowners insurance picture and develop an affordable, not-for-profit system of paying for residential hurricane losses while leaving the rest of the property and casualty insurance field to for-profit firms. A group called Hurricane Coalition Inc., headed by former state Rep. Don Crane, has developed such a plan, complete with testing software, and it deserves consideration.
Meanwhile, as hurricane season dawns, once again all Floridians with any kind of property insurance policy must assume the official state position — take your seat, hold your breath, keep smiling and hope the arena is around to host next year's game.
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