EDITORIAL: Insurance, taxes: 2 sides of the same coin

COMMENTARY

Insurance, taxes: 2 sides of the same coin

Mike Thomas

January 22, 2008

We want lower taxes.

We want lower insurance rates.

We cannot have both.

I begin with insurance. The industry has become the new Big Tobacco in Florida, portrayed as a villainous cartel that must be regulated into submission.

That’s fine. But let’s understand the direction we’re headed in.

The property-insurance market is a historical money loser in Florida. We are a graveyard for bankrupt insurers. Most recently, the Poe Financial Group in Tampa went belly up after the 2004-05 storms.

When an insurer can’t pay its claims, taxpayers must make good on the bad debt. We were taxed $747 million on our home and auto policies to pay claims for Poe customers.

We also are paying about $1.7 billion to bail out Citizens Property, with much of that tacked on as a tax assessment on our homeowner insurance policies.

So when you complain about insurance premiums going up, understand that part of that is a tax increase.

The big, publicly traded insurers didn’t require a bailout. They are more cautious about taking on too much risk in Florida.

One way they mitigate risk is by raising premiums.

But Florida regulators have been aggressively blocking them from doing that, even as these insurers shed more and more policies.

Invariably, Citizens Property picks up many of them. It then discounts the premiums it charges, collecting insufficient money to pay damage claims. Hence we have the taxpayer bailouts.

There also are a growing number of small, start-up insurers entering the market to feed on the scraps.

State regulators say they check their financial solvency. But there is only so much checking you can do. These small insurers are the ones most likely to go bankrupt after major storms, requiring more taxpayer bailouts.

There is a direct correlation between suppressed insurance premiums and taxpayer bailouts.

Now look ahead to the next round of devastating storms, which are as guaranteed in Florida as taxes, death and humidity.

Whenever that big one hits Miami or Tampa, the state won’t have enough to pay claims. So it will have to scurry off to the bond market to raise tens of billions of dollars.

Investors will not buy that amount of debt that fast from a state reeling in financial chaos.

Florida would go belly up, dependent on a deficit-riddled federal government for a bailout. Notice how we keep passing the bailout up the food chain?

Florida also would have to enact a massive tax increase to begin paying claims. This is one reason why a plan to replace property taxes with an increase in the sales tax died. We need to save any future increases in the sales tax for covering storms.

Do the math. Citizens Property has taken on about $500 billion in risk, with Gov. Charlie Crist encouraging it to take on even more. It has about $5 billion in operating cash.

We are running an insurance company funded by little more than a promise to tax residents whatever it will take to pay claims.

And the politicians in charge of this operation are telling the private insurers how to run their business.

Depending on whose rhetoric you believe, we have the boobs regulating the thieves.

If the boobs prevail, we had better start planning to expand the tax base, cap spending and start socking away billions for a stormy day.

When will we ever learn? There is no such thing as free risk.

Mike Thomas can be reached at 407-420-5525 or mthomas@orlandosentinel.com.

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