Editorial: Crist and legislature must work with insurers to ensure storm coverage

Herald-Tribune--February 15, 2009

Now that the state has given State Farm Florida conditional approval to leave Florida’s property insurance market, Gov. Charlie Crist and legislative leaders can drop their populist rhetoric and try to figure out how to make hurricane coverage viable.

The pending departure of State Farm, Florida’s largest private insurer of property, makes that task all the more difficult. As pointed out in news reports by the Herald-Tribune’s Paige St. John, Lloyd Dunkelberger and John Hielscher:

Florida lacks adequate capital, in the event of a major hurricane, to cover either the 1.3 million homeowners insured by state-run Citizens Property Insurance Corp. or the many private insurers that depend on the Florida Hurricane Catastrophe Fund for windstorm coverage.

The Cat Fund is facing an $18 billion shortfall in its ability to pay potential windstorm claims. Two key fund rating agencies have said that unless the shortfall is closed, they will downgrade the ratings of the private insurers. If that happens, the homeowner policies of millions of Floridians would be worthless, and banks could invalidate mortgages that require qualified insurance.

A state task force has recommended that Citizens lift a three-year freeze on rate increases and boost rates by at least 10 percent a year for three years. Rates in some parts of Florida could rise as much as 25 percent a year if the Legislature approves the task force recommendations. Experts say Citizens’ current rates are not actuarially sound.

State Farm vs. Crist

State Farm Florida, which has about 1.2 million homeowner policies, had said last month that it intended to phase out those policies by the end of 2011. That announcement followed the state’s rejection of the insurer’s request for rate increases that would average about 47 percent statewide; rates would have risen even higher in this region: up to 72 percent in Sarasota County, 79.4 percent in Manatee and 82 percent in Charlotte.

After State Farm’s announcement, Crist and some lawmakers said, in effect, good riddance.

“They probably charge the highest rates in the state anyway,” Crist told reporters. “Floridians will be much better off without them.”

Crist is also supporting legislation that would prevent State Farm from selling auto insurance in Florida if it leaves the property market.

Sen. Mike Fasano, R-New Port Richey, who said he was “outraged” by the insurer’s threatened pullout, is sponsoring the auto policy measure.

“This would say to the Allstates, the State Farms and the others who have been collecting premiums from homeowners for years that if you’re going to refuse to sell homeowners insurance in the state of Florida, then you can’t sell automobile insurance,” Fasano said.

‘Excessive’ request

Crist and Fasano had reason to be upset. State Farm’s rate increase request was rejected not only by Crist’s insurance commissioner, Kevin McCarty, but by an administrative law judge. The judge said the insurer failed to show that the request was not “excessive” or “unfairly discriminatory.”

The request followed a 2006 State Farm rate increase that averaged 52 percent and decisions last year to drop 50,000 coastal homeowners’ policies and stop writing property policies.

Nevertheless, more than a million customers have so far been willing to pay the well-capitalized company’s higher rates, perhaps because so few recognizable companies are writing policies.

That alone should make the governor and Legislature temper their remarks and actions.

However unfair State Farm might have been, it’s hard to see how Florida will be, as Crist contended, “better off without them.”

While McCarty’s conditional approval of the insurer’s departure stipulates that it place its policyholders with private insurers and not “dump” them into Citizens, the difference might be negligible in the event of a hurricane: The private insurers rely on the state’s Cat Fund for windstorm coverage. As noted previously, both Citizens and the Cat Fund are severely undercapitalized.

Rather than seek revenge on State Farm’s auto policies — and the 2.8 million Floridians who hold them — it would be wiser for Crist and legislative leaders to confer with private insurers that still offer homeowner policies in the state and determine how to adequately and economically provide hurricane protection for Floridians.

National catastrophe fund

One possible solution would be through the creation of a national catastrophe fund that would pool the risk for disasters such as hurricanes, floods, tornadoes and earthquakes.

Last week in Fort Myers, Crist personally lobbied President Obama for support of such a fund. Crist’s voice might be amplified if it was backed by Allstate, Liberty Mutual and other major insurers that operate in Florida and across the nation.

What is clear is that Florida can’t afford to make enemies of the insurance companies that, like itself, are in the risky business of providing coverage to homeowners and businesses in a hurricane-prone state.