As Hurricane Season Begins, Batten Down Your Wallets

Robert Sanchez says, 

The Atlantic hurricane season officially began on June 1, and once again the weather experts are forecasting a very active season, with more major storms than in a typical year. What the experts cannot precisely forecast is whether Florida will be in the path of any of these storms.

On the other hand, experts who have studied Florida’s property insurance market are fully able to forecast precisely what could happen if one big storm or a series of lesser storms were to strike this vulnerable peninsula: It would cause a financial disaster.

Here’s why: With a politically manipulated regulatory climate having caused several large national property insurers to reduce their exposure in Florida, the government-operated Citizens Property Insurance – initially formed to be the state’s “insurer of last resort” – has become the state’s largest property insurer.

 Unfortunately, if storm damage were widespread, Citizens would not have enough money on hand to reimburse all of its clients for their losses, and neither would it have enough reinsurance – which is insurance for insurers – to cover all of the losses.

 To pay its claims then, Citizens would need hastily to borrow billions of dollars. It would pledge to repay these loans by imposing surcharges – really taxes by another name – on every Florida property insurance policy and auto insurance policy. That could amount to one of the largest single tax hikes in Florida history.

The state would have no alternative, though, because failing to pay the claims would be disastrous for Floridians who had counted on Citizens’ coverage, and failing to repay the borrowed money would destroy Florida’s carefully cultivated credit rating, which allows the state to borrow at favorable interest rates.

The 2011 Legislature did accomplish some helpful reforms concerning property insurance, including a phased-in crackdown on the rampant fraud and abuse associated with homeowners’ bogus claims of sinkhole damage.

Yet the state’s vulnerable position with respect to Citizens looms as a much more significant problem, so perhaps it would be helpful to note what the 2011 Legislature did to address this problem. It can be summed up in four words: Nothing. Zero. Zilch. Nada.

Former Gov. Charlie Crist’s populist policies arguably contributed to the regulatory climate that caused so many major insurers to flee the state, so we wouldn’t want his successor to emulate his policies. However, given the Legislature’s inaction on Citizens, there is one Crist gesture that he might emulate.

In 2007, Governor Crist’s first year in office, he took part in a trade mission to Israel. While in Jerusalem he went to the Western Wall and inserted a note with a prayer that by his own account read, “Dear God, please protect our Florida from storms and other difficulties. Charlie.”

Some will attribute Florida’s lack of significant storm damage in recent years to the Governor’s prayer, and others will attribute it to sheer luck, which can be interpreted as shorthand for the seeming randomness of natural disasters. As the saying goes, the rain falls on the just and the unjust. Tornadoes, too.

Sadly, however, whether one has faith in prayer or in Florida’s continuing good luck, those forces may be the only hope left for Floridians as this storm season approaches since lawmakers failed to reform Citizens, leaving it a glaring exception to free-market principles and a fiscal disaster waiting to happen.