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Sun Sentinel: Jerry D. Parrish: Taxpayers remain at risk until Citizens has reform
Monday, September 30, 2013
Florida is gambling against Mother Nature.
We’re entangled in a decades-long game of chance, hoping to dodge her strikes. But hurricanes happen, and it’s only a matter of time before another storm hits our shores. Even if it’s not this year, Florida will be directly hit by a hurricane and our current property insurance system leaves the state vulnerable.
Florida pays for hurricane damage after the fact by assessing a “hurricane tax” on most types of insurance policies, including those that cover homes, cars, boats, and motorcycles. You can check your insurance bill now — there’s an assessment included on it that is collected to pay off the damage from Hurricane Wilma, a storm from the 2005 hurricane season. Florida policyholders, including those that moved to Florida after the 2005 season, have been paying for that hurricane damage for several years.
After careful analysis of Florida’s property insurance system, Florida TaxWatch has called for returningCitizens Property Insurance Corporation (CPIC) to be an insurer of last resort, as was its original intent. CPIC is a nonprofit, tax-exempt, quasi-governmental corporation whose public purpose is to provide insurance protection to Florida property owners throughout the state.
CPIC currently holds more than 1.2 million policies and more than $375 billion in exposure. Many of their policies are concentrated in two parts of Florida: the southeast area of the state, most vulnerable to hurricanes; and West-Central Florida, most vulnerable to sinkholes. While Florida hasn’t sustained a direct hit by a hurricane since 2005, sinkhole claims have depleted much of the reserves that should have been saved and used for future hurricane damage.
CPIC and the Florida Hurricane Catastrophe Fund (Cat Fund) currently have enough reserves to cover a moderately sized hurricane. However, if the state is hit by a large storm, or several storms as happened in 2004 and 2005, the damage could exceed reserves and Florida policyholders will foot the bill for years to come.
The risk posed to Floridians and the state economy will continue to be a vulnerability if CPIC is not required to reduce its exposure. Recently, CPIC has done away with close to 300,000 policies, but far too many Floridians are still insured below market rate. These citizens have subsidized policies, which will put the state in jeopardy when a hurricane does hit and it has to pay out claims. The more than 1.2 million policies carry $375 billion in exposure, which averages more than $300,000 per CPIC policy.
By moving more policies into market-oriented insurance rates, the risk to all policyholders, and to the state itself, is reduced. With less risk, it is less likely that taxpayers will be forced to pay assessments.
Hurricanes are a threat that will leave taxpayers unfairly paying for risk taken on at subsidized levels, and it’s only a matter of time before a storm will impact the shores of Florida.
On September 11, Humberto was named as the first hurricane of the 2013 season. Although having the first named storm is unusual so late in the year, we are still in the heart of the season and the threat of a significant storm in Florida should still be a concern.
The Florida Legislature must continue to reform the CPIC until they are no longer putting taxpayers in danger of paying for storm damages.
Jerry D.Parrish is executive director, Florida Tax Watch Center for Competitive Florida