New thinking on insurance

By A TIMES EDITORIAL
Published August 5, 2007

Gov. Charlie Crist's harsh criticism of insurance companies reflects the anger all Floridians feel toward a powerful industry that simply refuses to make property insurance available or affordable because it fears a major hurricane. But that frustration has to be channeled into more creative thinking about how to ease a crisis that shows no sign of letting up. ¶ The governor and state legislators were celebrating in January after agreeing that the state would accept an enormous amount of financial risk in return for substantially lower premiums for property owners. So far, the trade-off has not been worth it.

Rates have risen or dropped only slightly, and the industry doubts the state can make good on timely covering the risk. Policies continue to be canceled, and private coverage is all but impossible to find at any price in many areas. At the same time, the state-run Citizens Property Insurance Corp. continues to balloon as it charges rates that are not actuarily sound on houses private insurers won't touch in South Florida and Tampa Bay. This is a prescription for economic disaster that Florida can avoid only as long as its luck holds out during hurricane season.

Chief Financial Officer Alex Sink reasonably raises the possibility of undoing the changes the state made just months ago. There is no point in selling deeply discounted reinsurance to private insurers and risking billions in assessments to policyholders or higher taxes after a storm if premiums aren't significantly lowered. But turning back the clock and hoping for better results can't be the entire answer from Tallahassee. If anything, it appears a crisis that seems immune from the usual private market forces is going to require an even larger - but different - government response.

First, Crist and state lawmakers need to tone down the rhetoric. They overpromised and underdelivered, and Floridians are angry enough. State regulators absolutely should force insurers to justify their rates, but determining appropriate premiums cannot be a purely political exercise.

Second, the governor and the chief financial officer need to bring industry officials to the negotiating table. Both sides have to find a way to agree on a government response that will result in available, affordable private property insurance. Simply allowing Citizens, already the state's largest insurer, to continue to grow and charge artificially low rates while private insurers keep the lowest risks is not a long-term solution.

A recent Rand Corp. study says the private insurance market is better equipped to sell coverage for modest damages that occur often - like auto accidents. It suggests government is better positioned to cover infrequent catastrophes with larger damages -like hurricanes. Yet it cautions against putting too much faith in either the private sector or the government to ease the property insurance crisis. That sounds like good advice.

With that in mind, Florida officials should re-examine how the state's role can be adjusted to form a partnership with private insurers. One possibility would be to review concepts floated by Democrats Jim Davis and Rod Smith in last year's race for governor. While the details were different, both suggested the state could take over at least a portion of windstorm coverage for all property owners. Private insurers would sell comprehensive property insurance policies, send the windstorm portion of the premium to the state, and service the policies. There would be caps on individual windstorm coverage and on the state's overall liability. The risk would be spread statewide, and there would be no need for the state to make a profit or for private insurers to buy so much reinsurance.

At the same time, the governor should consider embracing an intriguing bill in Congress that would enable windstorm coverage to be purchased through the national flood insurance program. The bill, HR 3121, has been approved by the House Financial Services Committee and also could end disputes about whether hurricane damage was caused by wind or flooding.

There may be better ideas worth pursuing. But two things are clear: The current solutions to the property insurance crisis aren't working - and the escalating war of words between the governor and insurance industry leaders isn't helping.

[Last modified August 4, 2007, 22:58:36]