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Insurance crisis may destroy economy

By SEN. MIKE FASANO
Published December 10, 2006

Florida faces a looming economic crisis. I am not speaking of an unemployment crisis, an inflation crisis, a banking crisis or even a tourism crisis, though I may very well be talking about those things soon enough if we continue down this spiraling path. What I am speaking of is an insurance crisis, and it has the potential to decimate every aspect of our state's economy.

Many homeowners, landlords, renters and business owners across the state would argue that this is already occurring, that the rising costs of property insurance, windstorm insurance and sinkhole insurance are discouraging investment in our state and making people think twice about buying a new home or even moving to Florida in the first place. I agree with them, and, unfortunately, it's about to get a lot worse.

On March 1, Citizens Property Insurance Corp. - the state-run insurer that provides insurance to home and business owners in high-risk areas and others who cannot find coverage in the open, private insurance market - will begin charging policyholders a premium that includes enough of an increase to cover Citizens' cost of purchasing reinsurance. This was mandated last year by the Florida Legislature in Senate Bill 1980.

However, Citizens is not required to actually buy the reinsurance and has no plans to do so. Citizens is simply required to pass along the fictitious costs to Floridians as if it were purchasing reinsurance. This means an average rate increase of nearly 56 percent for most of Citizens' residential policies and an average 610 percent increase for its commercial policies.

How did this happen? It is no mystery that property insurance has become unaffordable in Florida. Last year, the Legislature attempted to provide some relief through the passage of Senate Bill 1980. However, in the closing hours of the 2006 legislative session, insurance industry lobbyists managed to sneak language into the bill requiring Citizens to raise its rates as if it were purchasing expensive reinsurance, even though Citizens does not plan to actually buy it.

Why would private insurance companies care how much state-operated Citizens raises its rates? The answer is simple: Insurance companies have been seeking state approval of record rate hikes during the past couple of years, and in many cases, their requests were lowered or denied. But if Citizens raises its rates by an astronomical amount, then the high rate requests that private companies submit don't look quite so bad anymore.

Obviously, this situation is ludicrous, and something must be done. In our state, insurance is a necessary burden that all home and business owners must bear, especially considering the threat of hurricanes. Because of this, the availability and affordability of insurance is a vital component of our state's economy. And the lack of such insurance is an economic disaster waiting to happen.

So what is the answer to this crisis? There is no single solution. The Legislature attempted to provide some answers last session with Senate Bill 1980, but with the inclusion of the insurance industry's latest ploy to increase rates, I could not in good conscience vote for the bill. The reasons are now evident as drastic insurance rate hikes are on the horizon for those who have nowhere else to turn but Citizens, in essence the insurer of last resort.

A special session of the Legislature has been called in January to again address the insurance crisis. At that time, the two provisions in Senate Bill 1980 requiring home and business owners to bear the cost of reinsurance that Citizens is not even going to purchase must be repealed.

This is, by no means, the only solution to providing for a healthy and affordable insurance market in our state, but it is a much-needed beginning.

Mike Fasano of New Port Richey represents District 11 in the state Senate.

[Last modified December 9, 2006, 20:28:35]