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Our View: Dismantle Citizens? Go for it!

  • By
  • | 4:00 a.m. April 27, 2011
  • Longboat Key
  • Opinion
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Shocking. Just shocking.

Florida Gov. Rick Scott, according to Florida’s daily newspapers, wants to phase out Citizens Property Insurance Corp., the taxpayer/state-owned and largest property insurance company in Florida.

That evil Scott.

How could he? How could he support dismantling the socialized, state-owned property insurer in favor of a private-sector insurance market?


Indeed, the way the mainstream press colors it, eventually shutting down Citizens Property Insurance would make as many as 1.3 million property owners “turn to the surplus lines market, where rates are unchecked and policies are not backed by a state guarantee,” according to the St. Petersburg Times.

No fair!

And imagine this: Gov. Scott’s policy managers apparently had the gall to meet with insurance industry lobbyists. Can you imagine — political officials meeting with industry lobbyists?

Unheard of!

The scary thing is there probably are way too many Floridians who believe, as the liberal press does, that dismantling Citizens; meeting with lobbyists; and having a deregulated insurance market with no taxpayer guarantees are outrageous horrors.

But all we can say is: Go for it! Get rid of Citizens Property Insurance. Sell it to the private sector. And deregulate Florida’s property-insurance markets. Those indeed should be the Legislature’s goals over the next four to six years.

The real story of Florida’s property insurance market is not the prize-winning revelation that millions of Florida property owners are ultimately insured by unregulated reinsurers who make a lot of money and party in Monaco and Bermuda. The real story is Florida taxpayers are sitting on a time bomb that easily could make us all forget Hurricanes Andrew, Charley, Wilma and Katrina.

It’s probably safe to say most Floridians have no clue that when one of Florida’s urban markets experiences a direct hit from a hurricane, every Florida property owner will be paying higher taxes to cover the claims that Citizens Property Insurance will be unable to fulfill.

Eli Lehrer, an insurance analyst and scholar for the James Madison Institute, has reported for more than two years now that unless the Legislature dramatically shrinks Citizens Property Insurance Corp.; reforms the state’s Hurricane Catastrophe Fund; and moves to a more deregulated property-insurance model, when that Big One hits, every Floridian (each and every 18 million of us) will be paying as much as $6,000 in taxes to fulfill the unfilled insurance claims of Florida hurricane victims.

Read the box above. Lehrer says a direct hit will trigger the equivalent of Florida declaring bankruptcy protection, because it will not have the funds to pay what Citizens and other insurers are promising to pay their policyholders.

Few Floridians realize this, but state law requires that Florida taxpayers will be the “insurers” for whatever Citizens Property Insurance cannot pay.

Florida’s insurance system has been like this — a disaster — ever since Hurricane Andrew hit Dade County in 1992. And every condition that exists in Florida property insurance is a direct result of bad policy making:
• Lack of insurance supply and insurers;
• Undercapitalized insurers;
• Lack of rate competition;
• Inadequate rates for the risk for insurers;
• Insurers sheltering income in spin-offs;
• Insurers resorting to high-priced reinsurers;
• Taxpayers holding huge financial risk.

All of this is because of lawmakers who have not had the courage or will to make tough decisions.
Finally, in Scott, taxpayers elect a governor who is willing and determined to do the right thing for the right reasons — phase out Citizens Property Insurance and let the private sector serve consumers.
But as always, the political class cowers at giving up power, and the liberal media perpetuate their incessant harping on the insurance industry, never able to understand how capitalism and profits work or the evils of political intervention.

Capitalism is the free, peaceful exchange between a buyer and seller, each of whom receives a mutual benefit in the agreed-upon transaction. “Free prices and free profits will maximize production and relieve shortages quicker than any other system,” wrote economist Henry Hazlitt in the 1940s. (Unfortunately, in Florida insurance, the state mandates the price and what it buys; the buyers and sellers have little say and we have shortages.)

Profit is what makes the economy works. The surplus after expenses is the capital that begets more and better products and services. With no profit in insurance, no insurance. Profit, too, is a reflection of ingenuity and risk-reward. Surely, even the liberal press cannot argue with the notions that ingenuity deserves its reward and that reward should be commensurate with risk.

And then there’s government intervention. This always tilts the table to one man’s advantage at the expense of another. Frenchman Frederic Bastiat described government intervention and “lawmaking” as placing “the collective force at the disposal of the unscrupulous who wish, without risk, to exploit the person, liberty and property of others. It has converted plunder into a right, in order to protect plunder.”

The Legislature has another week to go before its session ends. Valor may still prevail. We may yet begin to see the defusing of Florida’s time bomb.


The following is excerpted from “Borrowed Time,” an essay that appeared in the March 11, 2011, edition of the Gulf Coast Business Review. Author Eli Lehrer addressed in the essay the risks Florida taxpayers are facing because of Citizens Property Insurance Corp.

“Sometime soon — maybe even this year —  the run of good luck that has brought Florida five consecutive hurricane-free years will end. When it does, the state could face a fiscal crisis that would make this year’s $3.6 billion budget gap appear trivial.

“If legislators do not quickly enact reforms that cut the size of the Florida Citizens Property Insurance Corp., reform the state’s Hurricane Catastrophe Fund and improve the safety of the state’s built environment, quite simply, they will not have done their job.

“The facts about Citizens and the Cat Fund show just how serious the situation has become. Rather than leaving the risk to private insurance companies, Citizens, a state agency that sells property insurance to about a quarter of all Floridians, could force taxpayers to pay billions for damage to homes all across the state.

“And the state-run Hurricane Catastrophe Fund, which sells discount-rate reinsurance (insurance for insurance companies) to Citizens and all of the state’s private insurers, is an even worse mess. It has about $6 billion in hard assets to pay for claims that, in a particularly bad year, could theoretically top $24 billion. 

“To pay off these obligations, the Cat Fund would have to issue at least $18 billion in bonds and then collect about $6,000 from each family of four to pay them off.

“Because there is no practical way for the state to collect this much revenue under current laws, Florida probably would have to seek some sort of bankruptcy-like protection to stay afloat or impose a new tax.

“Change is possible. In fact, a few reasonably simple pieces of legislation could fix the system without causing major disruptions for Florida residents.

“Proposals that shrink Citizens should come first.

“Rather than abolishing Citizens immediately, as desired by some in the insurance industry, the Legislature should take a middle course and work to shrink Citizens 60% over four years. A gradual reduction in Citizens’ size and scope would significantly cut the liability imposed on taxpayers while still providing “last-resort” coverage for high-risk homeowners in the Keys and elsewhere.”

Asked if the following was true — “Gov. Rick Scott has secretly pushed to kill Citizens Property Insurance before his first term ends …

” — a spokesman for the governor told the Longboat Observer: “Gov. Scott has always said Citizens should be the insurer of last resort. He has never advocated getting rid of it entirely.”



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