Florida Homeowner's Insurance - Bad Moon Rising?

Today, our esteemed governor Charlie Crist is expected to sign the 2007 Florida Insurance Reform package into law. This will take away the downside risk from the insurers and place it on the state, thus (in theory) bringing rate relief.

In other words, in exchange for lowering rates now, if another catastrophic year like 2004 or 2005 happens again, the state will pay the majority of the insurance claims.

Does the state currently have the money to pay these claims? No, they do not. From the Tampa Tribune, some "downside risk" associated with the reform package.

'Insurance reform legislation that passed last week shows what's possible when lawmakers seek "ideas that help Floridians," Gov. Charlie Crist said in a weekly newsletter sent to supporters.

"Help for the people of Florida is on the way! Help is on the way in the form of lower homeowners insurance rates for every Floridian," Crist wrote Friday.'

So far, so good! But....(and it's a big 'BUT'....)

'And it might work, too, unless the state gets hit by a strong hurricane in the next few years.

"We are screwed if that occurs," said Senate Democratic Leader Steve Geller of Cooper City, one of the plan's architects.

A few worst-case scenarios are tempering some of the enthusiasm over what Crist and others bill as a bipartisan triumph:

• What if Florida gets hit by a costly storm before it can build up a bigger, new public catastrophe fund, designed to lower premiums by relieving insurers of some risk?

• What if new rules against "cherry picking," the practice of offering the most profitable types of insurance but not property insurance, send automobile insurers packing from Florida?

• What if a bulked-up Citizens Property Insurance Corp., the public insurer of last resort that's now empowered to offer other types of insurance, steals customers from private businesses?'

Aye, so there's the rub. And Charlie is worried about another one-time event.

'Crist even added his own scenario, which he plans to address at a Cabinet meeting this morning:

What if private insurers try to rush through rate hikes now, while the reform plan is being implemented?

Crist has an answer for that one: offer an emergency ruling to prohibit policy cancellations and require rate changes to incorporate the new legislation.'

So, back to the first point: in this blind pursuit of lowering insurance rates, what kind of risk is Florida taking on?

'Insurance industry officials accept the reforms as a political reality but caution they put state finances on precarious ground.

The eight storms that hit Florida in 2004-05 created $36 billion in insurance claims. Insurers warn this could be a drop in the bucket if the right storm hits the wrong part of Florida.

They insist that Citizens' premiums are irresponsibly low and won't be able to cover all of its claims in a future storm. That could lead to another taxpayer-financed bailout such as the one approved in 2006 and more assessments on all insurance policies.'

So what happens if we get wacked by another storm (or series of storms) and the state is on the hook for a bill that it can't pay?

' Floridians would also be hit with huge assessments on their property, auto and other insurance policies to cover any damages charged to the newly expanded public catastrophe fund.

Private insurers are responsible for the first $6 billion of payouts in a storm under the new reforms. The state's catastrophe fund covers the next $16 billion. If additional claims remain, as in an especially powerful hurricane, a second tier of the public catastrophe fund covers the next $20 billion in losses.

The state would have to issue bonds to finance all of that.'

Oh, and by the way, how much money does the state currently have socked away for catastrophic coverage?

'The catastrophic fund now has less than $2 billion.'

So, the next time a hurricane hits, get ready to pay for all those beach houses, waterfront mansions, and 2nd, 3rd and 4th homes of wealthy people. It's all now being subsidized by you.

Full Article