A Popular Solution at What Risk?

A product of a special session lasting just a handful of days, at 176 pages the recently enacted property bill is a classic study of how the laws of political pressure can work to change the government’s agenda when it comes to a regulated industry such as insurance. Since Hurricane Andrew in 1993, the overall perspective in Tallahassee has been that the role of government has been to assist the private market, which was viewed as the real solution to the state’s high-risk homeowners’ market. It was that guiding principle that saw government create the Florida Hurricane Catastrophe Fund and the initially residual markets that were created as a market of last resort. Subsequent bills set out the framework to attract new capital and spread out the state’s resources over two hurricane seasons.

For many, the proof of the wisdom of those choices came in the 2004/2005 hurricane seasons when private insurers had to foot the bill to the sum of $37 billion while handling over three million claims. Were there problems, yes, especially when it came to the Citizens Property Insurance Corporation’s claims handling. Two companies -Poe Financial and its other insurance operations, and more recently Vanguard Fire and Casualty, collapsed under the financial weight of losses. Even so, however, past rate increases and other factors kept the private market intact. And the private market remained the solution of choice. But the recent action by lawmakers represents a fundamental step backwards from that point of view.