Florida Legislature to Ban Hurricanes -- More at 11:00

The Florida Legislature meets in special session today to fix the hurricane problem in Florida.  The new governor wants lower insurance prices (a campaign issue if not a promise) and he is interested in expanding the state’s portion of the risk it bears to make sure the rates decrease. 

The Orlando Sentinel (1/14) has a nice story on the problems facing Florida.  They are exactly as recounted here at RiskProf over the last three years.  However, they still manage to throw into the mix a quote by a (justifiably) angry, but clueless homeowner.  

Faced with that prospect, the "conundrum is how to make insurance here affordable but at the same time to make it economically viable," said Robert Hartwig, president and chief economist of the New York-based Insurance Information Institute. "Florida remains, unfortunately, a money-losing proposition under the current circumstances."
….
Fran Stark finds that hard to believe.

She has lived in her one-bedroom unit at Lemon Tree II condos in south Orlando for almost a decade.
…
She already spends about $160 a month on heart and cholesterol medicine. Now insurance costs have driven up her condo expenses by more than $100 a month. Stark has never filed a hurricane claim and suspects the companies are doing just fine.

"Why are they hitting us so hard?" she asked. "They shouldn't have the right to jack prices up so much."

Ms. Stark, like other Floridians, want a free lunch.  The governor is going to have to tax all of the citizens in Florida to keep rates lower.  Where is that money going to come from?  The insurer of last resort is not called Citizens for nothing!

Alternatively, a rollback in prices will generally cause insurers to leave the state.  In fact, this is what caused the birth of Citizens. It has happened before and will only get worse in the future.

In fact, we may be seeing this in Mississippi.  I say “may” because there are also other problems affecting the state.  Ted Frank points this out as firms (read Mississippi employers) in high risk locations can not obtain insurance coverage. The employers are leaving, in part, due to the insurance situation. 

The question one might ask is why there is no insurance?  Well, the Mississippi environment is uncertain as to whether insurance contracts will be upheld.  If there is uncertainty, insurers tend to raise prices or not write further business.  Remember insurance is a voluntary business and if David Rosmiller is correct that State Farm was surprised its recent Katrina verdict (Broussard v. State Farm), that means prices will rise to cover risks like the Broussards.  Other insurers may just decide to stay home and not write in Mississippi.  Either way Mississippi is worse off  — and that is the part that no one seems to appreciate —the long run influence of judicial redrafting of insurance contracts hurts the next people who want to purchase an insurance policy.

 

 

 

Comments

[Finance Guide 101]

Hello Grace,

Very interesting post about Florida profitability. You have a good resourceful, helpful and informative blog on taxes thank you for sharing your valuable information.