Editorial: Florida Property insurance market is built on sand

The Tallahassee Democrat published the following editorial on August 19, 2010:

The phrase “I told you so” is rarely a winning conclusion to any conversation. But the news this week that another big insurance company wants to pull out of the Florida property insurance market has been predictable.

  Maybe not down to the point of speculating on which company — last Friday it was Cotton States Mutual Insurance, which has been in the Florida market since the 1960s — would file to pull out of the state because the cost of doing business is too high.

But supporters of more consumer choice in the property insurance field have long been skeptical of the claims that there are plenty of insurance companies that want to do business in the Sunshine state — and that new ones coming in would fill a gap left by State Farm, to which Gov. Charlie Crist said “good riddance” when it threatened to pull out last year.

Although there have been a number of small start-up companies and some that insure extremely high-risk properties but not your average mom-and-pop residence, Florida’s market is not stable, and it needs some of the solid, long-time corporations such as Cotton States to stay the course.

Yes, as Gov. Crist continues to say, it’s great to have affordable property insurance, but we might say it’s better to have reliable property insurance.

And the way things now stand, if a big hurricane season attacks our vulnerable peninsula, it is entirely possible that claims would not, could not, be paid for the vast losses incurred by policy holders.

Cotton States, headquartered in Atlanta, has 24,300 homeowner policies and some 17,000 auto policies statewide, and if its request to pull out is approved by the Office of Insurance Regulation, it will start nonrenewing policies as early as November. Many of its policies are written in the Tallahassee area, according to the withdrawal request.

“The cost of maintaining our current business is not proportional to the amount of premiums earned in Florida,” Cotton States spokesman Melinda Zehr said.

Legislative efforts to increase consumer choice center around allowing some of the most financially sound insurers to raise rates without going through extensive regulatory hurdles and letting the free market operate well, more freely — yet with certain rate-hike caps or other safeguards in place.

Right now, the state-backed Citizens Property Insurance Corp., once the insurer of last resort, is the state’s largest insurer. And even it would be seriously unprepared to cover the losses if (when) a major hurricane were to slam into the state. Many of the state’s smaller private insurers are undercapitalized and in dangerous financial shape.

Florida’s insurance situation is precarious and this additional blow is more evidence that policy work is badly needed: more consumer choice, more assurance of the solvency of insurers, more oversight of public adjusters and limits on the time one can wait to submit a claim — two areas that are abused and drive up costs.

The only reason the situation isn’t more dire just now is that the weather has been merciful for several years: no horrendous hurricanes.

But that could change, and the insurance market needs to be stabilized before it does.