COLUMN: Economic reality catching up with Crist’s insurance pipe dream

Orlando Sentinel–January 25, 2009

Mike Thomas

If Barack Obama nationalizes the banks, I hope it goes better than Charlie Crist’s version of nationalizing the Florida insurance market.

Soon after entering office, Charlie fulfilled his promise to cut hurricane premiums by turning state-run Citizens Property Insurance into a coastal welfare agency. He froze rates, selling policies at discounts.

The problem with a welfare program is that the longer it goes on, the harder it is to wean people off it.

But that is the mission of a state panel, which is coming up with recommendations to undo Charlie’s meddling in the insurance market before he bankrupts the state.

Its report to the Legislature calls for a series of rate increases for Citizens’ policyholders designed to push them back into the private market. Expect a crescendo of protests from South Florida, where property owners could face premium hikes of 20 percent next year.

That would be just the beginning. Rates would continue going up every year until they began to reflect the real risk lurking out in the Caribbean during storm season.
This will raise the cost of living and the cost of real estate in a region that is crumbling from the high cost of living and high cost of real estate. It is so bad that people are fleeing South Florida in record numbers.

Now it will be worse.

This always was the flaw in Crist’s insurance scheme. He could freeze rates, but he couldn’t freeze the hurricane risk. Somebody ultimately must pay for that — if not the ratepayers before the storm, then the taxpayers afterward. The pendulum had swung too far in the direction of taxpayers.

All Crist accomplished by suppressing premiums for Citizens policyholders was to make their day of reckoning more painful.

The original purpose of Citizens was to serve as an insurer of last resort. When a homeowner couldn’t get insurance anywhere else, Citizens would take him in.

Charlie twisted that completely around. He changed Citizens into a competitor with private insurers.

Homeowners could sign up with the state company even if private insurance was available.

It’s hard for private insurers to compete against a company that sets rates based on the whims of politicians and has no capital requirement to back up its policies. If Citizens were a private carrier, the state would shut it down.

An issue of fairness

At a meeting of the state panel, former Senate President Locke Burt said this raises a fairness question.

“And when we’re talking about the consumer, let’s talk about the greatest good for the greatest number,” he said. “Because when Citizens has a loss, the 83 percent of the people who are not insured by Citizens are going to pay a significant portion of the tab.”

This is why Citizens’ policyholders cling to the company even when private insurance is available. There always is the comfort in knowing we are out there to pay their tab. Making matters worse is that the private carriers tend to be small, unknown start-ups. Would you put your trust in one of them, or in a governor who has frozen your rates three years running?

This incentive to mooch has to stop.

Citizens must shrink and go back to its original mission as insurer of last resort.

This will entail rate hikes and going back to old provisions that require homeowners to use private insurance if it is available. Someone living on Miami Beach should not be allowed to put Orlando taxpayers at risk simply as a matter of choice.

Citizens should cease writing policies for new construction. This encourages massive condo projects on the coast by guaranteeing them storm coverage.

The Citizens mess is just one phase of Crist’s failed insurance policies. Another is his massive expansion of a hurricane-catastrophe fund that is so underfunded the state couldn’t even borrow enough money to pay the billions in risk it covers.

Charlie has Florida living on borrowed time. It is time to get him out of the insurance business.