EDITORIAL: Florida, and Washington, have work to do to prepare state for hurricane season

South Florida Sun-Sentinel--April 5, 2008
South Florida Sun-Sentinel Editorial Board

ISSUE: Lawmakers grapple with more reforms.

“Run for the hills” would be appropriate advice, except there are few hills in Florida, and almost all are in the northern part of the state. So there’s really no other recourse for Floridians other than to have their elected leaders take another stab at property insurance reform.

Two bills are worth noting.

The first, SB 2156, and its House counterpart, HB 7021, is a no-brainer. This bill reins in the bulk of last year’s “reform” efforts regarding the Florida Hurricane Catastrophe Fund that exposed the state to greater financial liability to insure property damage from hurricanes.

The second bill is just as important, but is a tougher sell because it covers a lot of ground. SB 2860, and its companion bill, SB 1196, makes several changes, including improving standards for property insurance rate filings, increasing penalties for violating the state’s Insurance Code and extends for another two years the current prohibition on increasing rates on customers in Citizens Property Insurance Corp.

Both measures merit a thorough vetting by the Florida Legislature, and the sooner these bills work their way through the process and become law, the better.

You might remember home and commercial property insurance. That was the mushroom-cloud issue that dominated the political landscape before last year’s blow-up over property taxes and this year’s meltdown over the state’s early presidential primary.

You might have thought the most disappointing thing about the 2007 property insurance reforms is that very little changed, or that maybe you didn’t get the expected sharp reduction in premiums. It turns out, though, that things are worse than we all thought.

Not only have insurance prices not dropped dramatically, but the state has, as critics predicted, taken on a lot more risk than it can handle.

For example, if an area like South Florida were hit by a powerful storm causing, say, $50 billion in damage, Florida’s insurance programs would be left holding a $36.5 billion bag. To make up the difference, many billions worth of fees and assessments would have to be levied on all kinds of policies, from homeowner to automobile coverage. Wall Street is a big part of the problem. Its woes will make it very hard for the state to sell as much as $27 billion worth of bonds to make up losses.

So, there’s no choice now but for state lawmakers to go back to work on a new round of fixes. The rest of us had better brace for a new round of premium hikes.

The good news is that there is a consensus to scale back exposure of the CAT Fund. Alex Sink, the state’s chief financial officer, and other state insurance officials have warned the state could fall way short in raising new money through bonds, putting Floridians at risk of being too financially exposed if a severe storm hit resulting in many billions of dollars in damages. Fortunately, efforts to fix that glitch is moving in both legislative chambers.

Other changes, like removing the freeze on premiums for Citizens’ 1.3 million policyholders, will be the subject of hot debate. Those rates are frozen through the end of this year, but the Senate wants to extend the freeze for another year. That’s too risky a proposition for a policy roster full of customers concentrating in higher-risk and heavily populatedcoastal areas. The company must raise enough dollars through increases inpremiums to mitigate that exposure.

No doubt increasing premiums will inflict pain on Citizens’ customers, but it’s nothing compared to the catastrophic costs that await Floridians living across the state if a powerful hurricane strikes a region laden with Citizens policies.

Lawmakers should ensure that that scenario doesn’t happen — ever. The state and the company are going to have to enact rate increases judiciously so that they are made as gradual and affordable as possible, but the freeze has to expire.

What’s maddening about all this is that, for all its efforts, Florida isn’t getting the cooperation it deserves from the federal government. U.S. Reps. Ron Klein and Tim Mahoney successfully steered a bill that would create a national catastrophic fund through the House, but the measure faces stiff opposition in the Senate, and President Bush has promised a swift veto if the bill makes it to his desk.

Gee, thanks.

It’s almost tempting to follow the Katrina example. That’s where we sit on our hands, do nothing until the powerful storm hits, and then we stick Washington and U.S. taxpayers with the bill and a huge “I told you so.”

Nothing will change, however, until Washington learns a lesson that Florida has learned — it’s best to prepare and plan for the worst in order to save lives, property and money.

BOTTOM LINE: Back to the drawing board.