The soaring cost of property insurance is an absolute crisis in Florida. I get asked all the time for my perspective on the problem and what I would do to help Floridians struggling to stay in their homes. So I wanted to lay out some thoughts in one place. Here it is:
First and foremost, we need a true public nonprofit insurance company that is open to all Floridians. This is the single most transformative change we could make. And I really do think it’s inevitable in Florida – a state that is one big peninsula sticking out into hurricane alley of the Atlantic Ocean at a time when temperatures are getting hotter, sea levels are rising, and storms are strengthening.
There are a few ways we could structure something like this. One idea would be to allow any Florida homeowner to buy their hurricane insurance (aka “windstorm” insurance) from Citizens Property Insurance Corp., the state-backed nonprofit insurance company. Private, for-profit insurance companies could continue to cover the other, more predictable parts of homeowners insurance, like fire and theft. The price of homeowners’ insurance would drop like a rock.
I want to stress a couple of points about this.
First, this is a bipartisan idea. There was a bill filed this past session to open Citizens up to all Floridians this past session. The primary sponsor was a Republican. Several other Republican legislators signed on as cosponsors, too.
Second, neutral insurance industry experts who have evaluated this idea found that it would work.
And third, this would be safer for Florida policyholders and taxpayers. A public nonprofit insurance company would accumulate savings in years where we do not have a major hurricane. So it could save its “profits” to pay future claims rather than giving the money away to investors. A public nonprofit insurance company would also build more geographic diversity, by covering more new homes or homes built further inland – instead just the highest-risk homes along the coast. Spreading the risk around like that would make it less likely that a single hurricane or single hurricane season could wipe out all the nonprofit company’s savings.
Right now, Florida taxpayers are subsidizing private, for-profit insurance companies. We allow private insurers to cherry pick the safest, most profitable properties while passing the riskiest properties off on the public. We provide them with taxpayer-financed reinsurance that they can tap into after a hurricane. And we cover all their claims when they run out of money. The current system is the worst of both worlds – one in which we’re privatizing profits and socializing losses. We need to cut out the middleman.
Beyond offering Floridians a public nonprofit insurance option, we should also crack down on the financial shell games that private insurance companies are playing to unfairly pocket money that should be going towards paying claims.
Florida has laws that are supposed to prevent property insurance companies from pocketing excessive profits. But companies have found many ways to get around those rules. For instance, they will set up a second company, owned by the exact same shareholders, and then start paying things like “management fees” or “agent fees” to that company. The main insurance company will report these as “expenses” to regulators – but, really, these are just profits that have been moved from the left pocket to the right pocket. This is a major reason that many Florida insurance companies have run out of money to pay claims.
We need to strengthen our laws so that regulators have the tools they need to catch these kind of accounting gimmicks and put a stop to them.
We also need more transparency in the insurance space. Right now, Florida law allows insurance companies to declare virtually every aspect of their business – from the loss projection models they are using to the insider deals they sign with affiliated companies – “trade secrets” that are exempt from public-records law. This makes it virtually impossible for independent experts to evaluate them. Sunlight is the best disinfectant – and we need a lot more sunlight on property insurance companies.
Finally, we need to keep doing the important long-term work that will make our state safer and more resilient in a world of higher ocean levels and stronger storms. That means continuing to fund grant programs that help Floridians harden their homes against wind and water damage. It means further strengthening our building codes to ensure builders are using the most effective materials, tools and techniques. And it means steering smarter growth and more responsible real-estate development, so that we don’t continue to overbuild in especially flood-prone areas.
It also means getting serious about doing our part to address the sources of climate change and to stop temperatures from spiraling completely out of control. Florida is, by itself, one of the largest economies in the world. We can have a global impact by doing more to reduce the use of greenhouse gasses like carbon and methane, to expand the use of renewable fuels like solar and wind, and to support technologies ranging from energy-efficient appliances and homes to carbon capture. I also want to stress that Florida House Democrats have filed several bills to help address the property insurance crisis, unfortunately these bills are never granted a hearing. You can see the most recent bill here.