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Shoring up insurance

Florida won't see four hurricanes each year, but the state must prepare for future storms by helping homeowners and insurers alike.

The lessons Florida learned from Hurricane Andrew in 1992 left the state better prepared to cope with four hurricanes in six weeks last year. Stronger building codes, better coordination between government and private agencies and reforms aimed at strengthening the insurance market helped millions of Floridians get back on their feet relatively quickly. But the storms also exposed several ongoing problems: Too many homeowners are underinsured. Inadequate competition among insurers leaves customers with too few options. And insurers don't have enough protection against back-to-back damage losses.

State regulators, legislators and industry representatives have met for months to craft a legislative proposal to strengthen Florida's property insurance market. The goals are complementary: Expand customer choice and make coverage more affordable, and bolster the financial ability of insurers to meet policyholders' needs in the event of a catastrophe.

The major change would create a range of hurricane deductibles beyond the typical 2 percent of a house's value. Allowing higher deductibles, which shifts more risk to the homeowner, could moderate rates and attract more insurers to write coverage. Homeowners would have new incentive to make their property more wind-resistant. Lawmakers should encourage Congress to approve tax-free Hurricane Savings Accounts, modeled after health and retirement savings plans, to enable homeowners to save money for deductibles and emergency repairs. Policies also should state more clearly what is and is not covered.

Legislators also need to deal with the increased dependence on the state-run Citizens Property Insurance Corp. As the insurer of last resort, Citizens serves high-risk homeowners the private sector will not cover. Yet the second-largest insurer in the state, with more than 814,000 policyholders, lacks the permanent customer service apparatus - call centers, adjusters, service agents and the like - that insurers need to serve policyholders. Citizens made some improvements after complaints last year, but it needs a full-service operation to match the role it plays in the market.

Lawmakers also should make it easier for hard-hit insurers to tap the state's Hurricane Catastrophe Fund, which was designed to help insurers cover claims from one large storm, not multiple storms. Under the current formula Citizens could not tap into the fund, because its losses were spread across four hurricanes last year. As a result, Citizens may post a $400-million deficit this year in its windstorm account, which could prompt a $60 assessment on all homeowners' policies in Florida. Citizens is awaiting an audit before making a decision. But a reasonable proposal would make it easier for insurers to turn to the catastrophe fund for help by lowering the total amount of claims they must first face in both the first and subsequent storms.

Florida will not have a four-storm season every year, but the state will continue to grow. Last year's $21-billion property loss demonstrated the vulnerability of our coasts and large urban areas. Florida needs to plan for big and multiple storms. Homeowners need incentives to strengthen their homes. And insurers need the ability to spread and stabilize their risks so that genuine competition can develop. Any reform must be a balancing act.

[Last modified March 6, 2005, 00:13:18]