Last week Governor Crist’ signed into law a bill that has the possibility of “nationalizing” the insurance industry in Florida. What the bill did was to make the State of Florida take on a larger degree of hurricane risk. Prior to the enactment of the new law, Citizens (the insurer of last resort) had to have the highest premiums so as to not crowd out the private market. After the law’s enactment, Citizens rates were slashed dramatically and now they may be less than private market companies. In addition, the law allows the Florida state run catastrophe reinsurance fund to sell lower levels of reinsurance to the private market. This puts the state at greater risk as it now is the risk bearer in the primary market (through Citizens) and in the reinsurance market (though the cat fund).
However that wasn’t enough for Mr. Crist. Today he signed an executive order prohibiting insurers from dropping customers or attempting to raise rates through the regulatory process. While not a complete taking of contract rights, this seems to be an unusual attack on contract rights that sound more like it comes from a Socialist rather than a Republican.
Today’s Washington Post has two interesting tidbits on this issue. First it quotes a customer who is salivating over the chance to switch from the private market to Citizens and second it mentions that both S&P and Fitch have downgraded the state’s hurricane bonds because of fears that the state will be issuing more of them — and that it is more likely that the state will hit its statutory bonding capacity. The downgrades don’t come without a cost either as they essentially cost the state more in bond interest rates. So Florida is increasing the incentive for homeowners to buy from the state by lowering Citizen’s rates while it also lowers private market rates by selling at below market reinsurance. Pretty soon it will corner the market on homeowners risk. Good luck with that!