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Insurance crisis has their attention

As Florida's homeowners insurance crisis continues to dominate the conversation around kitchen tables and political campaigns, the candidates for governor have refined their approaches. Charlie Crist and Jim Davis deserve credit for offering more ambitious, specific proposals than they did over the summer. Neither has the perfect solution, but the direction is clear: Floridians need help sooner rather than later, and state government's role will have to become larger, not smaller.

Crist embraces an approach that already has broad support. Private insurers are reluctant to write policies in Florida because they can't find reasonably priced reinsurance to cover their losses. The Republican would make it easier for insurers to get reinsurance through the state's Hurricane Catastrophic Fund by allowing them to tap into it when their aggregate losses reached $3.2-billion instead of $5.3-billion. Then he would force the insurers to pass their savings on to homeowners. Of course, the easier the CAT fund is to tap, the more likely assessments would have to be added on home, auto and other lines of insurance after a major hurricane season to replenish the fund.

Another idea would be to adjust the CAT fund rules to make reinsurance the least expensive for insurers willing to take policies out of Citizens Property Insurance, the state-run insurer of last resort. That would make more sense than paying insurers bonuses for taking Citizens policyholders, which hasn't worked.

Davis has a more innovative proposal that is bolder - and potentially riskier if a major hurricane hits in the next couple of years. He would put the state more directly in the insurance business and have the governor and Cabinet oversee it all. Homeowners would buy coverage from private insurers, but a portion of their premium would be passed on to the state and placed into an account to cover a portion of hurricane losses. The governor and Cabinet would establish the coverage limits of each policy, and the percentage of losses that would be covered. The liability of the state account could be capped at $20-billion for each hurricane season.

In theory, the Davis plan would better spread the risk, eliminate profit and overhead, and lower premiums. Yet unless the state went several years without major hurricanes while money accumulated in the state account, there might not be enough money to cover major losses without issuing bonds backed by some combination of the premiums, large assessments or a significant infusion of tax money from the state. Of course, the state already is in this situation with Citizens. But once this state account was established, it likely would be permanent because insurers would never take back the hurricane risk. The stakes are high, and this is a proposal that will require plenty of financial review before there would be an acceptable comfort level.

Crist and Davis deserve praise for continuing to brainstorm, because the next governor will have to address this crisis as the first order of business. As the public outrage builds and insurers continue to raise rates and drop policies, Florida needs both short-term relief and a long-term solution. That is going to require leadership from the Governor's Mansion and a greater public commitment than ever before.

[Last modified October 23, 2006, 02:17:12]