Florida’s exposure to catastrophe losses (hurricanes) and the high and rising insurance premiums have been well documented, but the blame game has started to shift away from the insurance industry (see our prior post). Driven by the high costs of insurance, Florida took over a large piece of the personal lines insurance business, deciding it could do a better job. Now reality may be sinking in as hurricanes threaten and people start doing the math. A recent Time article points out the dilemma (see here):
But a series of studies have made it clear that if the Big One or even a Pretty Big One strikes, Florida is going to have very serious problems. The state-run insurance firm and the Catastrophe Fund have just a few billion dollars on hand, so a major storm would force both entities to float massive bond issues in an unfavorable market, and to make up their shortfalls through gigantic assessments on policyholders.
The idea of a national catastrophe fund has some support, but critics ask why other states should pay for Florida’s exposure. As Time points out:
Florida has spent the last 80 years ignoring its vulnerability, developing its floodplains and shorelines, selling the dream of the Sunshine State to northerners and foreigners. But the day of reckoning will come. Hopefully it won't come Tuesday.
It may not be Ike, which is moving slowly into the Gulf. But it a large storm will hit at some point. If Florida doesn’t have its financial house in order, the citizens, through Citizens, will pay dearly.
The insurance business provides risk transfer to its clients, and therefore must be good at assessing risk. The industry missed the mark prior to Katrina and the following storms, and misses the mark in other areas as well. It is the nature of the business. However, over time the premiums will eventually trend to the right level. Thinking that the State can do a better job is unrealistic.
Brought to you by MercatorPro.
Comments