Thursday, September 24, 2009
Perdido Key, Florida
All this week, Florida’s largest newspaper, the Miami Herald, has been writing both feature articles and editorials about the problems facing Florida property owners in finding affordable insurance. Day after day, headlines conveyed the intensity of the struggle: “Storm Warning: Prop up insurance,” was a typical lead, along with “Is Citizens Insurance ready for the big one?” and “Lawmakers still scrambling on wind insurance.” Florida, like all gulf coast states, has problems of both insurance affordability and availability. But here’s the difference between the Sunshine state and the Bayou state. Florida is giving the problem serious attention. It’s a front and center concern for the governor, the legislature, insurance regulators, and the news media. In Louisiana, there is hardly a whisper.
When Florida Governor Charlie Crist took office a few months before Governor Bobby Jindal in 2007, his first words of commitment were: “The lack of available and affordable property insurance is the biggest threat to our economy. We cannot wait until the regular legislative session to find solutions.” Crisp immediately called a special session of the legislature and offered a litany of changes and reforms that led to cheaper insurance rates.”
Florida has significantly more hurricane exposure than does Louisiana. Ninety percent of all homeowners live within a few miles of the Gulf or the Atlantic Ocean. A hurricane crossing the Florida peninsula slows down, at best, only 15 miles per hour. Yet in spite of all this exposure, property insurance rates are cheaper in Florida than in Louisiana. In Perdido Key, on the Florida-Alabama border, many Louisianans have beach homes or condos. On average, they pay significantly less on these properties than they do on their homes in New Orleans, Baton Rouge and other Louisiana cities. Property insurance rates for commercial real estate have gone down, somewhere in the neighborhood of 30% to 40%, according realtor Steve Ekovich of the Tampa office of Marcus & Millichap, and insurance is more available.
Look at the figures released by the National Association of Insurance Commissioners. In Louisiana, for every $100 of residential property insurance, the homeowner paid, on average, $1.006. In Florida, a similar homeowner paid only 69.3 cents. Louisiana has, hands down, the most expensive property insurance rates in the entire U.S. Yet Florida has much more exposure. Why?
Simply put, Florida officials, from the Governor on down, have made insurance affordability a front burner issue. In Louisiana, it has been little more than a blip on the radar.
Like Louisiana, Florida has a Citizens Property Insurance Company that is state created and sells to those homeowners who cannot find insurance anywhere else. The difference is in legislative support. From day one, the Florida Company has received state funds on a regular basis to build up reserves. By properly managing the company, Florida Citizens has almost $ 4 billion in cash in the bank to pay claims. There is also in place a bank line of credit and proceeds from municipal bonds that put total available funds at close to $7 billion.
Florida has also created a Hurricane Catastrophe Fund to back up and reinsurance losses for both Citizens and other private insurance companies operating in the state. Citizens purchased this year nearly $9.8 billion in coverage. So all told, the Florida state created company has the ability to handle claims of up to $16.8 billion.
So how does Louisiana stack up? Well, for starters, due to inept and corrupt management before Katrina hit, no back up funds were arranged, and Katrina and Rita claims now exceed well over $1 billion. There was only minor reinsurance in place when the two major storms hit in 2005. The company was recently tagged with a $95 million legal judgment for failing to pay claims on time, and the former CEO is about to go on trial for misappropriating for his personal use hundreds of thousands of dollars. There is no wonder why the company, created by the legislature and overseen by the Insurance Department, has been called the biggest financial disaster in Louisiana history.
There have been eight major hurricanes that have hit Florida since their legislature created Citizens. Yet 40 new companies have come into Florida to sell property insurance, and ten of their companies sell windstorm coverage right along the most exposed areas of the Florida coast. But to qualify for the available insurance in these storm-prone areas, strict building code requirements are in place. The roofs of such insured homes must have been updated since 1996. And all window protection, including required shutters, must meet specific state and local regulations.
Has Florida solved its property insurance problems? Hardly. Increasing costs and continuing hurricane exposure makes any effort to control insurance rates all the more challenging. The difference between Florida and Louisiana is one of effort and priorities. The Florida Insurance Commissioner is lobbying hard for a national catastrophic program for gulf coast states. Florida congressmen are pushing a number of programs in Washington. The legislature meets regularly to discuss insurance issues, and Governor Charlie Crist will base a major part of his campaign for US Senate next year on his efforts to control property insurance costs.
There is a pro active effort in Florida to protect consumers. Here’s what the Miami Herald said this week about current Insurance Commissioner Kevin McCarty: “He has not hesitated to take on the insurance industry when he thought consumers were being scalped.” The new House Speaker said this week that property insurance issues are of huge concern to Florida legislators. “This is a very complex issue and I hope we see some solid solutions come forth, but it won’t be easy,” he said.
No, it won’t be easy, but there seems to be a major good faith effort by Florida officials to keep affordable insurance front and center. In Louisiana, property insurance issues have faded away and are barely a blimp on the perennial screen, with little comment or concern expressed by any public official. So is it any wonder why Louisiana property owners continue to pay the highest rates in the nation?
“It’s not hurricanes that are causing high insurance rates, but bad government policy,”
Policy analyst Michelle Minton
Peace and Justice.
Jim Brown’s weekly column appears in numerous newspapers and websites throughout the south. To read past columns going back to 2002, go to www.jimbrownla.com.