How not to fix insurance

A Times Editorial
Published January 14, 2007

What a difference a year - and an election - makes in Tallahassee. The 2006 effort by Gov. Jeb Bush and the Legislature to address the property insurance crisis was a market-driven approach heavily influenced by the industry. It did not stabilize rates or slow policy cancellations or lure large private insurers back into the Florida market in a year with no significant hurricanes.

Now, Gov. Charlie Crist and new legislative leaders are responding to the anger they heard on the campaign trail by changing directions, declaring they will force premium reductions and acknowledging government will have to play a larger role in making property insurance more available and affordable. In the state Capitol, that is a significant change in philosophy that should benefit Floridians.

But in their rush to respond to the crisis in a special legislative session that opens Tuesday, the governor and state lawmakers have to be careful about raising expectations too high for immediate rate relief and putting the state's long-term financial health in jeopardy. Everyone should be aware of the stakes if the state and its taxpayers assume significantly more risk and expense the next time a major hurricane hits in return for lower premiums now.

That "pray now, pay later" approach is apparent in several key proposals. For example, it would be reasonable to repeal a large rate increase coming up in March for Citizens Property Insurance Corp. policyholders that was the unanticipated result of changes lawmakers made last year. But it would be short-sighted to also repeal a statewide average 25 percent rate increase that took effect Jan. 1 that is supposed to keep Citizens' rates financially sound. That would only make it more likely assessments would be required to make up a deficit after a major hurricane.

Similarly, lawmakers also are considering letting homeowners take on greater financial risk in return for lower premiums. They would lift limits on deductibles, tempting homeowners desperate for relief now to assume costs they couldn't afford after a storm. That is not good public policy, and it would increase the likelihood that more Floridians would require public assistance to rebuild.

But the really big money would be involved in further limiting the potential liability facing insurers in another attempt to encourage them to write more policies and stop canceling so many. It would be reasonable to make it easier for insurers to tap into the state Hurricane Catastrophe Fund for reinsurance and to expand the fund's capacity, as long as the insurers pass their savings on to policyholders. But make no mistake: Enabling the CAT fund to cover billions in additional storm damage is not without risk. It could easily result in more assessments after a storm and require a state bailout.

The boldest proposal on the table also gives us the most pause. Some senators suggest further limiting insurers' risks by creating a "super pool" of state money that would kick in after the limits of the CAT fund have been met following a catastrophic hurricane. The idea is that insurers would lower premiums now because they would know exactly what their maximum exposure would be after a monster storm. But there would be no actual account or dedicated funding source, and it could put the state's taxpayers on the hook for several billion dollars.

Florida's only choice after a disastrous hurricane would be to borrow heavily or raise taxes just when its residents would be hurting most and the need to rebuild public infrastructure would be greatest. It's an idea worth discussing, but there is considerable risk involved and it may require more time and study than a special session allows. And any discussion about the state taking on so much risk after the storm should include an examination of whether it would make more sense for the state to take on more insurance responsibility on the front end as Democrats proposed during the election. At least then the state would have a stream of premiums and could begin building reserves.

In this week's special session, lawmakers should proceed with caution. They should have learned from last year about the dangers of passing insurance changes without fully understanding the impact. Choosing instant gratification in the form of rate relief now in return for substantially more unfunded liability later is not solving a crisis. It is merely delaying it until the next big hurricane hits.