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FL: As hurricane season begins, lawmakers look to phase out state-subsidized insurance

By   /   June 25, 2012  /   3 Comments

By Yaël Ossowski | Florida Watchdog

Tropical Storm Debby has reignited debate over the state-run property insurer Citizens Corp.

TAMPA— Ravaging Florida’s Gulf Coast on Sunday and Monday, the rains and winds brought by Tropical Storm Debby made quite an indelible mark on the Sunshine State.

Not just because it was the fourth named tropical system of the official hurricane season and brought on record rainfall totals and wind damage in such a short time, but also because it has stirred new debate about who should foot the bill for the clean-up costs, and how those costs will be divided — especially when the biggest property insurers are the taxpayers of Florida.

Currently boasting 1,431,738 policies, more than 25 percent of all insurance contracts, Citizens Property Insurance Corp. is the state’s largest property insurance company, formed in 2002 in the merger of the Florida Residential Property and Casualty Joint Underwriting Association and the Florida Windstorm Underwriting Association.

The FWUA was created in 1974 to provide wind insurance to residents in the coastal region, while the much larger FRPCJUA was created in 1992 as a “last resort” insurance program for storm-weary Florida residents in the wake of Hurricane Andrew.

Since its creation in 2002, Citizens is a tax-exempt government corporation that has grown to assume more than $500 billion in risks, a cost that some opponents argue eventually will bring a literal financial hurricane upon the state’s finances.

“We need to be truthful with all Floridians, said state Sen. Alan Hays, R-Umatilla.

“Citizens Corp. has an insured value that is half a trillion dollars and, woefully, it has inadequate reserves to pay for the right storm or the right combination of storms,” he told Florida Watchdog.

Hays has been a constant critic of the state-owned insurance franchise, drawing attention to the enormous financial risk the state puts itself in by guaranteeing the costs of normally uninsurable properties on hurricane-prone beaches and other areas.

The company has $6 billion in cash assets for insurance pay-outs, according to its latest financial report.

“The people of Florida need to understand the amount of debt that is looming over them in the event of a catastrophe,” Hays said.

“Hurricanes are not allocated to the state of Florida at once per year or twice per year. Continuing to prop up Citizens is not only a bad moral hazard, but it is also a bad financial wreck waiting to happen,” Hays said.

Two of Hays’ fellow lawmakers remain equally critical.

“Florida’s state-run market relies on the trinity of market ‘stabilizers’ known as Citizens, the CAT Fund and FIGA. Each of these entities comes from the same creator: the state of Florida. This means that should something go awry with one or all, you are on the hook as a taxpayer. If this sounds like a major gamble, it is,” wrote state Rep. Bryan Nelson, R-Apopka, and state Sen. Garrett Richter, R-Naples, on Florida Voices on Sunday, the same day Tropical Storm Debby made landfall.

They made the argument that the time has come to reopen debate on Citizens Insurance, owing to the dangerous situation that could arise were a large storm to hit the Sunshine State and leave the fund high and dry.

“What happens when Citizens doesn’t have enough money to pay its claims? Well, take a look at your home, auto, business or nonprofit insurance policy and you will see a 1 percent emergency assessment for the hurricanes that hit our state in 2004 and 2005,” they wrote.

If the legislators can prepare a bill for the next session, they would find an ally in Gov. Rick Scott, who previously expressed interest in phasing out Citizens.

“The cost of property insurance is a significant problem for our families in the state right now,” Scott told reporters outside the Capitol in March 2011.

“If looking at something like privatizing Citizens is something that would help drive down the cost of insurance in our state, I want to look at it very closely,” he said.

Recently, PolitiFact, the fact-checking website run by the Tampa Bay Times, took some of Scott’s claims about Citizens to task, rating his caution about the underfunding of the program as “mostly false.”

“That article should be cut out and laminated for all to see,” Hays said of the PolitiFact rating. “It is a true example on how to not report accurately and mislead readers.

“This is going to affect anyone who owns an automobile, a motorcycle or a house in this state,” Hays said. “They’re the ones who are going to have to pay the taxes so that the Citizens policy holders can have cheap premium rates for their beachfront condos.”

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Yaël is a writer, journalist and radio host. He has served as a Florida Bureau Chief for Watchdog.org and served as the site’s chief translator from Spanish into English. Yaël has worked as a multimedia journalist in Philadelphia, Charlotte, Tampa, and Vienna, and his writings have appeared in the Washington Examiner, The Gaston Gazette, Reason Magazine, Sunshine State News, Wisconsin Reporter, and PanAmerican Post. He has worked and studied in three countries across two continents. His Bachelor’s degree in Political Science and History is from Concordia University in Montréal and the University of Vienna. He speaks four languages and his hometown is Saint-Hyainthe, Québec. His personal website is Yael.ca and his PGP key is available here.

  • Joe Arthur

    Republicans always wants to privatize–which is amusing since no private insurance company will now insure houses in Pinellas county where I live. And we’re not talking about a waterfront condo. State should do one of two things: tell private companies they either write all types of insurance or none, or a state-run homeowners insurance for the entire state. Privatization does not result in lower premiums, not with the huge salaries paid by companies to those who administer those companies, and do everything to dishonor claims.

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