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The Ledger: Property-Insurance Reform Needed

Monday, July 29, 2013

Since 2008 when I was elected to my first term in the Florida House, I have advocated for reform to Florida’s property insurance market. During this period Florida has been lucky and blessed to have gone without a major storm or series of storms making landfall as we experienced in 2004 and 2005.

Yet Florida is only one costly storm away from financial catastrophe caused by Florida’s state-run insurance market.

Property-insurance reform is necessary because Florida relies on the trinity of insurance market “stabilizers” known as the Citizens Property Insurance Corp., Florida Hurricane Catastrophe Fund and Florida Guaranty Insurance Association.

Each of these entities was created by the Florida Legislature. Together they focus an unacceptable financial risk on the citizens of Florida.

This government solution must be reformed because, instead of spreading the catastrophe risk of hurricanes across the global capital markets, Floridians are basically self-insuring by allowing future hurricane catastrophe claims to be paid by assessments against Florida policyholders.

Unfortunately, reforming the property-insurance market is extremely difficult because of the political resistance caused by the subsidized property-insurance rates created by the system of state government intervention.

No politician wants to be accused of adopting policy that could increase property-insurance premiums. Logic and common sense are ignored because of the fear that reforming a government subsidy could result in higher insurance premiums.

This political reality has a negative impact on the Florida property-insurance market. Florida has a regulatory history of not allowing the property-insurance industry to operate with actuarially sound rates.

Although that reputation has changed since 2010, many large, well capitalized property insurance companies are hesitant to come back to Florida because of the combination of regulatory risk and the premium subsides created by the system of state government intervention.

Without property-insurance reform, Florida will never be able to attract the private capital necessary to reduce reliance on the state-government system.

With the leadership of Gov. Rick Scott, the Florida Legislature has made some incremental reforms. Yet much remains to be accomplished.

Legislation is required to greatly reduce the size of Citizens and the Cat Fund.

Reducing premium subsidies and improving the regulatory environment is the long-term solution that will attract private capital to the Florida property insurance market. Floridians need access to well capitalized private insurance companies that will not require their policyholder claims to be paid by the Florida Guaranty Insurance Association.

With 1,100 miles of coastline, Florida has more coastal risk than all of the other states from Texas to the Carolinas combined. We can’t move Florida or control the weather. We can only properly plan for catastrophic storms. That is why property insurance reform is so important for the future of Florida.

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