Hurricane gamble Taxpayers exposed to too much risk

Bradenton Herald--December 1, 2008

With Sunday’s official end to the Atlantic hurricane season, Florida’s run of good fortune now stands at three seasons and counting. The state only suffered heavy rains and flooding from Tropical Storm Fay, which threatened Manatee County but veered away. During the 2007 hurricane season, only a single tropical storm, Barry, belted Florida.

Yet the state’s taking a big gamble with taxpayers’ money over property insurance. And we cannot keep betting on mild seasons. While many homeowners were blessed with small savings in premiums, rates are expected to increase again. Some blame goes to the sluggish economy, soaring foreclosures and stagnant homes sales, but the bulk belongs to the rising cost of back-up insurance. While Florida has escaped significant storm damages for three years, other states got hammered. Hurricane Ike devastated Galveston. This season turned out to be the fourth costliest ever, notching $21 billion in insured damages in the country, according to the Insurance Services Office.

Staggered with catastropic losses, the reinsurance companies are indicating higher rates for their primary insurance clients, and those costs will trickle down into higher premiums for Florida property owners. Those primary insurance companies buy back-up insurance to avoid paying out all their cash on hand for claims. While Florida law prohibits those insurers from raising rates based on past losses, that doesn’t hold for reinsurance. Still, state insurance regulators should balk at allowing insurance companies to pass along all those increased costs of doing business down to consumers. Far more ominous is the monumental gamble that Florida’s leaders continue to play with the Florida Hurricane Catastrophe Fund, which sells lower-cost reinsurance to insurers in Florida. Taxpayers would be on the hook for billions in losses should a major hurricane inflict severe damages. The risk is too great. Florida Chief Financial Officer Alex Sink and others have been sounding the alarm about the CAT Fund, also warning that the state-run Citizens Property Insurance Corp.’s rates are not actuarily sound. The Legislature increased the CAT Funds’ reinsurance exposure to $28 billion in order to provide property owners with a break on premiums, but the modest rate reduction pales in comparison to the risk of a gigantic tax increase to cover major storm losses. That exposure should be reduced. Citizens’s rates, frozen by lawmakers through 2009, should also be based on sound policies and not on politics. Nobody wants to pay higher property insurance premiums, but the gambles with both the CAT Fund and Citizens are far too great. The Legislature and Gov. Charlie Crist should take up this issue next year – before we roll the dice again with a bet on hurricane season.