We’re always happy to feature Sup here at Slabbed whenever he gets the urge to author a post. Unlike many in the insurance industry Sup isn’t afraid to engage us and we’re very happy to have his perspective. (Note I’ve “blogified” the text minimally to add the links inline)- sop
Two articles published last week at the New York Times and Tampa Tribune indicate the folks in charge in Florida may have gotten their heads out of the sand. Governor Crist and the Legislature seem to have come to the realization that Citizens Property Insurance Corporation is broke.
What does this mean to the citizens of the state of Florida? It means they will be paying higher insurance premiums and they all must pray the state escapes hurricanes for a few years. “Citizens’ life expectancy in a storm: ‘a few short hours’ “ is stated in the New York Times article. It is clear the politicians and regulators were playing politics with this issue and it has now backfired. What these folks have done is criminal and if they were a private organization they would be prosecuted for the sham.
The second article reflects the Feds are not going to help. This article states by state law the Cat fund should be able to cover up to $29 billion, but state officials say the fund could only cover about $11 billion. Yet, the folks in charge reduced rates and forced a viable “A” rated carrier to announce it was leaving the state. Now what is going to happen when State Farm starts now renewing 1.2 million homeowner policies? Is Citizens going to shut the doors? I doubt it, so the problem will only become larger as people will still go to the underpriced product.
The good news is at least the politicians and regulators acknowledge they built a house of cards. What can they do to hopefully mitigate the potential financial catastrophe that is just around the corner with the next hurricane? First, go to State Farm and say, “How much rate increase do you need to stay in Florida?” This will prevent a terrible market disruption and keep Citizens from taking on even more potential exposure. One article indicates the Legislature is contemplating a 20% or 10% rate increase annually until the company and Cat fund has adequate capital. Those amounts are inadequate as there is bound to be a hurricane before Citizens and the Cat fund are adequately funded.
Let’s all pray the state of Florida continues to be fortunate in dodging hurricanes