Thoughts, essays, and writings on Liberty. Written by the heirs of Patrick Henry.

January 22, 2007

Florida Repeals The Laws Of Economics

by Kevin Boyd

The Florida legislature overwhelmingly passed a bill today that supposedlyaddresses Florida’s insurance crisis. The solutions these Solons came up with are:

The biggest savings are expected to come from expanding insurers’ access to the state’s Hurricane Catastrophe Fund, which pays claims when insurers can’t. Insurance companies pay into the fund, but the coverage is cheaper than the private backup insurance most companies carry.

Why should the state be in the reinsurance business? The reason why insurance companies do not have enough money to pay out claims for hurricane damages along the coast is because too many damn people are living on the coast. Instead, the Florida legislature should pass a law telling insurance companies there are not forced to write homeowners policies in coastal areas. Hopefully, the insurance companies will drastically raise rates along coastal areas to cover the extra risk or mortage companies will stop writing mortgages for homes along the coast since they won’t get insurance.

The bill requires insurers to determine if they could save by purchasing more coverage from the fund – and if they do, to pass the savings on to consumers.

Not content with merely subsidizing the bad decisions of Floridians, the Florida legislature has enough hubris to make the financial decisions of insurance companies. The insurance companies have the right to set whatever rates the public is willing to pay.

The measure also has a mandatory rate rollback for customers of the state-created Citizens Property Insurance, Florida’s largest insurer.

Again, Citizens Property Insurance serves to subsidize the bad decisions of Floridians. When Citizens cannot payout its claims, Floridian and American taxpayers will be on the hook to make up the difference.

It also requires regulators to deny rate increases if they would lead to “excess profits,”

Who’s going to determine the defiinition of “excess profits”, a committee made up of Keith Olbermann, Alcee Hastings, Barney Frank, Ted Kennedy, and John Edwards? Maybe Hugo Chavez, Kim Jong Il, and Fidel Castro are available as advisors. Government has no business determining “excess profits” for any business in a capitalist system.

and allows consumers to choose much higher deductibles, or to go without wind coverage, as a way to reduce their premiums.

Wow, instead of repealing the price controls on deductibles that Florida has apparently imposed, the Florida Politburo is going to graciously allow you to choose to carry higher deductibles. How nice of them. How about making the determination of deductibles the sole concern of the insurance company, the policyholder, and the mortgage company or is that too much to ask?

Another section aims at trying to prevent insurance companies from dropping policies or leaving the state. It requires auto insurers to sell homeowners coverage in Florida if they cover property in any other state.

My guess is, many auto insurance companies are going to say adios.

If the Florida Politburo wanted to really lower homeowners insurance rates, they should have done the following:

1) Make it clear that insurance companies are not required to write homeowners policies along the coast. This, hopefully, will price out from living along the coast.

2) Abolish the Hurricane Catastrophe Fund and the Citizens Property Insurance company. These two entities also seek to subsidize the bad decision of living along the coast in a hurricane prone state.

3) Abolish all rate caps and government approval for rate increases. This will allow insurance companies to price policies according to the risk.

4) Tighten all statewide hurricane building codes to the Miami-Dade county standard. This will actually serve to decrease risk and again, make it more expensive to live along the coast.

Florida’s insurance crisis is the result of government subsidizing living along the coast in hurricane prone areas. Similiar crisises are developing in every East Coast and Gulf Coast state for the same reasons. Maybe we should try something like using the free market to limit coastal development in hurricane prone areas and using science and engineering to reduce the risk of hurricane and flood damage in areas already developed, instead of using the American taxpayer as a never ending ATM card for bailing out the bad decisions of others.

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  • Jeff

    While this new legistlation is more a cosmetic fix than it is helpful to the average florida homeowner, at least they are trying.
    The idea that coastal residents in Florida should pay higher premiums is bunk. Almost 70 percent of floridas residents live in coastal areas and just about all of those areas had LESS damage than inland places like orlando during hurricane charley.
    Hurricanes frances jean and ivan did most their damage to coastal areas but a katrina type event would never occur in florida. The storm surge is worse on the coast, however with Hurricane Andrew in 1992, a category 5 storm, the damage was great but the loss of life and property came nowhere near what happened in new orleans.
    You seem to think every person that “chooses” to live in coastal florida owns a condo part time and have huge disposable incomes. The reality is most people are either retired on fixed incomes or they work in one of floridas main industries, like tourism and hospitality, which happen to be located near the coastal regions and beaches.

    As a resident of Floria since 1989 I am appalled by how easy it has become for developers to build whatever they want wherever they want. Maybe less people would be a good thing, but remember that people dont always choose where they live. Hard working floridians love this state and all its flaws and no amount of hurricanes will change that. We just want to put food on the table and not be raped and pillaged by our insurance companies every time a storm blows through.

  • Pete

    You talk about coastal Florida, I live 40 miles inland and a recent quote for my modiest home has more than doubled than twice of last years coming in at $4000.00 and 800% higher than when I move into my home 10 years ago, which is about what my morgage is for the year. I’m not sure what the cure will be but at least the legestlators are trying to do something. I think ’04 & ’05 hurricane seasons were an anomely which the insurance industries are taking advatage of.

    How would you like to pay a double morgage suddenly out of the blue when you have college expenses, health expenses, and just trying to get by and raise a family? I doubt you would like it… take your dribble someplace else.

  • LeftBrainFemale

    Hi Kevin! I have to “third” these guys – I’m a native Floridian who has lived here for 45 years now. The hurricanes we endured three years ago were
    the first of that magnitude that our area had suffered in my life. We live about 15 miles inland, and while our property flooded (exterior only – no interior damage) we sustained no damage worth reporting from any of the storms. We were blessed. But it matters not – our insurance has tripled in the five years we’ve lived here. This with no claims made to the insurance company. As for the “allowing us to choose higher deductibles”, well as others have said, at least it’s something! Our insurance mess down here is becoming untenable, and I’d venture to say that MOST of us are hard working and responsible – certainly most of us that have lived here all our lives. My sister and her husband live in South Florida (north of where Andrew came through a few years ago – and about 30 miles inland) and while they had no claims, have put up roll away shutters, done everything they possibly can to hurricane proof their home, their insurance company last year summarily dropped them one month before hurricane season – leaving them no options other than Citizens to get through the season – at more than double the already exhorbitant rate they were already paying. They’ve since been able to get private insurance again, but until you’ve been here, you just can’t believe how out of control this problem is.

  • http://www.thelibertypapers.org/2006/11/22/comrades-i-hereby-declare-the-revolution/ Adam Selene

    Pete, have you ever stopped to consider that the intrusion of the government into the marketplace is what caused your insurance woes?

  • LeftBrainFemale

    Actually, yes, it was the intrusion of government into the marketplace in our state which has in part caused the problem (along with too much development in coastal areas) but we’re in so deep now, I don’t know how it can be rectified.

    A bit of history: This program (under other names in the past) has been in effect in Florida since 1972. While it seemed, apparently, to our lawmakers at the time to be a good direction to go, it was also effective for many years – at least 30 years – where there was no real trouble.

    This system was based on a model in which the private insurance market was to play the greatest role in insuring Florida property holders and Citizens was to act as the insurer of last resort.

    While Citizens was granted the authority to assess other property insurance policies in case of a deficit, for many years, it was difficult for anyone to imagine a scenario where the assessment mechanism would take effect and require policyholders to subsidize the insurance for those policyholders in Citizens. Enter 4 storms in one hurricane season criss-crossing central Florida and the rest is history. Now we’re in dire need of some type of reform – whether that means that government needs to back out of it entirely, I don’t know. Seems that in our over-developed state there really isn’t an easy answer.

    But, as frustrating as it is to us, we have a lot in Florida to be thankful for. We don’t have a state income tax, so I suppose my insurance dollars going to help support Citizens for others in the state is something that we must live with for the time being – and, by the way, at this point, it’s only the Floridian taxpayers that are having to pay for the otherwise uninsurables in our state – not Americans in general.

  • http://www.thelibertypapers.org/2006/11/22/comrades-i-hereby-declare-the-revolution/ Adam Selene

    You know, every time that a state government has regulated insurance, it has turned into a disaster. Insurance companies have pulled out of the market, prices have gone up, more people have had difficulty obtaining insurance. Every time the state has deregulated insurance, it has proven to be a boon to consumers, with more choices, lower premiums and more people able to obtain insurance.

    Why would we do anything different, given the track record? Is this the old “it just hasn’t been done right” thing?

  • LeftBrainFemale

    Hey, it makes sense to me – I just don’t see it happening here anytime soon. I suppose if it were deregulated here, then those who live in high risk areas and can’t afford insurance would be forced to sell out to those who can . . . and that would probably force property values down . . . hmmm . . . not sure I like that idea, LOL! We’re sitting on our retirement “egg” right now, hehehe.

  • http://www.thelibertypapers.org/2006/11/22/comrades-i-hereby-declare-the-revolution/ Adam Selene

    I am willing to bet it would not force property values down, except maybe in the short term.

  • LeftBrainFemale

    No, you’re probably right – market would level itself, but I’m afraid it’s a moot point. I’m afraid on many counts I’ve lost faith – not in the system, but in the idiots who are determined to “run/ruin” it! ;-)

  • http://www.thelibertypapers.org/2006/11/22/comrades-i-hereby-declare-the-revolution/ Adam Selene

    Once the market corrected after the deregulation, insurance costs, even on the coast, should be expected to go down. Lower insurance costs means people are more likely to want to acquire that property. Insurance prices in Florida are not high because of hurricanes.

  • http://www.quincysblog.com/ Quincy

    If you want to know the single biggest thing that government can do to destroy an insurance market, I’ll tell you: Mandating coverage.

    One of the ONLY reasons insurance works is that insurance companies, in a free and vibrant market, can take on enough low-risk insureds as not to break the bank. Once coverage mandates are tossed in, all bets are off.

  • LeftBrainFemale

    Quincy ~ I’d say that has definitely been proven to be the case in Florida. It took a while thanks to relatively calm weather all those years, but . . . here we are now. The sad thing is, we all pay for it – as we’re required to when still paying on a mortgage, but we’re all terrified to use it unless for a major claim because we fear being dropped or another premium increase.

  • abnormal

    For those of that don’t know it, a number of other states already have laws on the books that forbid insurance rates to reflect losses in other states. That means that to the extent Florida tries to require insurers to subsidize rates there with profits from other states, it can’t be done. I’d fully expect that other states are going to follow suit.

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