(This blog was submitted to the St Pete Times in response to a recent Howard Troxler column.)
It is troubling to have to disagree with Howard Troxler, but I think his “Pay Now or Pay Later” column on property insurance is a little off the mark. Trox says there is a problem because if a big storm hits Florida, we will have to pay up and we don’t have the money. Troxler says we either have to take over the whole market, or let the insurance companies raise rates without regulation.
No. No. No. There’s no reason to take over the market, which currently works well for some people. And the insurance companies can raise rates now, but they have to prove the increase is justified. That’s where they run into problems. Nobody believes they aren’t making money when we have the highest insurance rates in America and no storms. Now, the details.
Mr. Troxler is dead on when he says we have to pay if there’s a big hurricane. Yes we do. The only outside help I can imagine is the federal government, which would probably chip in some disaster aid because, among other reasons, Florida is an important swing state in the upcoming elections. But outside of that there’s no one to turn to. On the other hand, insurance companies are not going to pay the bill either, no matter how much you let them raise rates. That’s not what they do. But they’re suggesting that somehow we won’t have to pay if we just let them raise rates. Don’t believe it.
We CAN do this ourselves if we want. The state would need access to a large amount of money it could borrow from in time of need. Here Troxler is correct, suggesting we might have to borrow at a bad time. But maybe not if the Feds make funds available perhaps recognizing that inevitably, that they will pay anyway. The ONLY other big source of money is “reinsurance” which is really large pools of money in Bermuda or Europe, for the most part. You can rent their money for a price. Florida could buy reinsurance on the global market for the “Cat” fund, and stabilize the market, but it would be expensive. That’s exactly what the insurance companies do, with a couple of the larger ones having their own surplus pools that they put partially at risk.
The insurance companies suggest they can accomplish this transaction more efficiently than the state can, and we should let them do it. They have not done that, and have, in fact, engaged in some overly greedy behavior that has motivated us to do it ourselves. That’s pretty much what you’d do with a contractor that worked for you. Sometimes you just have to do it yourself.
Florida’s Insurance Commissioner and Office of Insurance Regulation (OIR) are nationally recognized as among the best in the country. That’s why rates have stayed under control. We need a strong OIR to keep the insurers in line and analyze the many ways insurers have to raise rates (computer models.) The bills currently before the legislature would weaken OIR and allow the insurers to operate with less regulation. We know from watching Wall Street that deregulating these financial giants is not a wise idea.
If we want to lower our risk, there are two things we can do. The state could buy reinsurance for the Cat Fund, which is expensive. Or we could strengthen our homes, which is also expensive, but works out better in the long term. Ditto building wisely on the coasts to avoid hurricane damage. And we shouldn’t insure the riskiest homeowners or we should charge a higher premium, the same way we charge high risk drivers more for insurance. But the insurance companies don’t want to help us with this, even though they would make more money in the long run. The reason, in my opinion, is they want short term profits, especially at a time when premium dollars could be more profitably invested in the capital markets. That’s why they oppose our hurricane discounts and, again, if they won’t offer us discounts, we can continue to do it ourselves.
Let’s look at in one other way. Legislators won’t do anything because it costs money, and that could mean raising taxes. That leaves the insurance companies to levy the “tax” on us, but they won’t give us the benefit, which would be lowering our risk long term through strengthening our homes by using hurricane discounts.
Write to Gov Charlie Crist and tell him to keep standing up for consumers and veto those insurance bills.
