Certainty of death, taxes — not how hard wind blows
Albert Einstein said the hardest thing in the world to understand is the income tax. If it was hard for him, imagine the challenge for someone of average intellect. Al didn’t live in Florida, but I wonder if he’d be stumped by polarizing views on property insurance.
Viewpoints on cures for the ailing property insurance market are all over the map – literally. Let’s just focus on viewpoints related to Citizens Property Insurance. Monroe County residents are concerned about a bill before the Legislature (SB 1714) that would limit Citizens Property Insurance from writing new policies in coastal areas. Key West and island dwellers say Citizens is the only insurer writing business there, so they say limitations would have a decidedly negative impact. A newspaper article was critical of the bill’s sponsor for living in “a city in central Florida that is about as far away from the Florida coast as one can live.”
Inland residents with Citizens coverage are unhappy about paying a subsidy so people living on the coast don’t have to pay more. To explain what geography has to do with it, consider the annual subsidy paid into Monroe County. It’s over $60 million. That’s about half the subsidy that goes to Miami-Dade County. Statewide, the current annual subsidy is more than $430 million – which means lots of Citizens’ customers pay for living on the coast, even if they don’t. A good deal of this financial aid coming from inland folks goes to coastal homeowners living in Palm Beach and Broward County, too. Get insight by viewing the Citizens_Rate_Gaps for 2011.
When you hear talk about Citizens’ rates being inadequate, they are not inadequate everywhere. In fact, over 30 of Citizens’ 108 territories are expected to see a rate decrease in their premium if and when an agreement is made. Talk of inadequate rates is really about having people pay their own correct share of the risk. It’s true that significant rate increases may be needed for some people, which would be concentrated in the highest-risk coastal areas.
And, when you hear talk about the need to shrink Citizens and raise premiums, here’s what that is about: Citizens insures over $450 billion in property – and has $5 billion in surplus. Surplus is money put aside for the big storms. $450 billion on the books / $5 billion set aside means there is roughly a penny in surplus for every dollar of risk. The ideal is a dollar in surplus for a dollar of risk. Yes, the ideal may be illusory for lots of companies doing business in Florida, but the state-run insurer is nowhere close.