The problems in the Florida homeowners insurance market will not be solved by the “overly simplistic” idea of establishing a state-run wind coverage program as proposed by Americans for Insurance Reform, according to the Property Casualty Insurers Association of America.
Americans for Insurance Reform recently issued a report, “At the Tipping Point: The Homeowner Insurance Mess in Florida and How to Fix It,” which concludes that wind coverage should be removed from the private market and homeowners insurance be provided through a state-run entity.
“This report is long on rhetoric and short on real solutions,” William Stander, PCI assistant vice president and regional manager, said. “The report is based on the faulty premise that government knows best and can operate more effectively and efficiently than the private market. However, you only need to look at the performance of the state-run Citizens Property Insurance Corp., Florida’s insurer of last resort, for an example of how well this idea might work. Citizens is running at a $1.8 billion deficit, has had a number of operational and management problems, did not have adequate staffing to handle the claims volume and logged by far, the largest number of complaints from homeowners of any insurer.”
The report’s solution to “remove the private market from the equation” in order to keep prices low for consumers fails to explain where the money will come from to pay claims. While it states that rates would be actuarially sound, that would mean that rates will remain high in order to reflect costs stemming from hurricanes and other losses.
“Clearly, there is not enough money in the current system for the state-run insurer to pay its bills. Why would this new proposed program be any different?” Stander said. “Instead of creating yet another state-run entity, what is required is an influx of capital with an appropriate long-term rate of return. This coupled with continued efforts to strengthen building codes, the adoption of prudent land-use policies and the encouragement of disaster mitigation will allow policymakers to focus on finding the real solutions to problems in the state’s insurance market.”
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