To solve the problem of super-high-priced policies, poor service and restricted coverage after the four hurricanes of 2004, the State of Florida took matters into its own hands and essentially allowed its state-owned company to dominate the homeowners’ market, spreading risk as widely as it could within its borders. The Journal writes about that like it’s a bad thing.
Florida offers a glimpse into what could happen down the road. In the wake of recent storms that prompted many insurers to limit their exposure, the state’s last-resort insurer is growing — and assuming more risk.
When the 2004 and 2005 hurricanes slammed its coast, the state’s insurer of last resort, Citizens Property Insurance Corp., suffered heavy losses. It hit its own policyholders — and eventually even those insured by other companies in the state — with $2.7 billion in premium surcharges. Florida legislators also allocated $715 million to hold down fees.
Since last year, Citizens has continued its massive expansion, writing roughly 15,000 to 20,000 new policies a week. As a result, it could be on the hook for significant losses if major storms roll in. A direct hit on Miami could cost tens of billions of dollars, much of which would be borne by Citizens — now the largest property insurer in the state.
Florida’s move could be a very bad thing, but the story at least could have pointed out that the state now will also collect new premiums to offset the added risks. I’m mean, they’re stupid in Florida, but they’re not crazy. And did I mention the governor down there is a Republican who went by the nickname of “Chain Gang Charlie?” Read the Journal and you’d think the system was designed by the Columbia School of Social Work.
Listen, this risk-shift idea, coined by Yale’s Jacob Hacker, is not a small issue. He writes about a shift from government onto the backs of American families. Less well-noted is the shift from the private insurance sector onto the government. You probably have heard of the Terrorism Risk Insurance Act and the National Flood Insurance Program, but you probably haven’t heard of insurance-related agencies in your state, the California Earthquake Authority, the Pennsylvania Medical Care Availability and Reduction of Error Fund and the like. Those are all basically mechanisms by which the government takes risk off insurers’ hands or subsidizes the industry in some other way.
What other industry gets this kind of treatment?
You don’t hear Ford saying, “Well, we’ll make everything but the air bags and catalytic converters; that’s the State of Michigan’s job.”
In fact, I could make a better case for giving Ford a government subsidy. After all, a big part its problem is the government’s failure to reign in the spiraling cost of health insura…health insh…heh….
Hmm. I think I’m starting to see a pattern.
As I’ve said elsewhere, I’ve also had the benefit of being off the daily newspaper treadmill, studying insurance for more than a year. And, like I said, the Journal’s story is fine.
But insurers hold $4.3 trillion in assets, stocks, bonds, real estate, etc. That ridiculous. The Gross Domestic Product—the market value of the nation’s output of goods and services—is $13 trillion, in case you were wondering.
Insurance isn’t supposed to be an “industry” at all; but something that spreads risk so people can do something productive, like buy a house, provide medical care or make things.
And yet, it’s every household’s third or fourth largest expense. We’ve got 47 million people without health insurance. The Gulf Coast recovery is a disgrace. Thousands still live in FEMA trailers; many are fighting insurance claims. And FAIR plans are being swamped with new risks they can’t handle.
Point is: Insurance is a great business story. The Journal’s fine. The Audit wants—the nation needs—more.