Florida

Ah yes, surely Florida's governement can allocate risk far better than private actors...

Governor freezes insurance rates, bars companies from canceling policies
By Michael Peltier
Wednesday, January 31, 2007

TALLAHASSEE — Gov. Charlie Crist on Tuesday froze Florida property insurance
rates and prohibited companies from canceling policies as the state prepares
for another hurricane season and new laws take effect.

One week after state lawmakers signed off on a sweeping package of property
insurance reforms, Crist said the remedies need a chance to work and he
feared insurers may attempt to drop customers and raise premiums that don’t
reflect recent changes that backers say would reduce their risk.

“It’s fundamental that we make sure no policies are canceled and we make
sure that no rate increases are slipped under the door before this law
becomes effective,” said Crist, who bristled that his parents’ policy was
canceled last week.

The emergency rule, which remains in effect for 90 days, took the industry
and other Florida Cabinet members by surprise. The order will not affect
companies that recently have had rates approved by the Office of Insurance
Regulation.

Other companies such as Nationwide, which had requested a 71 percent
increase last year, will not be allowed to institute rate hikes until after
the 90-day period. Private insurers say the freeze, however temporary, may
directly affect their bottom lines.

“We think the rule will have a drastic negative impact on some of our
members,” said Guy Marvin, president of the Florida Insurance Council, an
industry group that represents the majority of private property insurers
still writing business in Florida.

Last week, Crist signed into law a bevy of fixes aimed at resuscitating the
state’s property insurance market that has been plagued by skyrocketing
rates and the exodus of private carriers.

The new laws more than double the size of the Florida state hurricane
catastrophe fund by putting policyholders on the hook for as much as $36
billion in hurricane losses that would be paid by assessing holders of
property, automobile, commercial and other lines of insurance.

full: http://tinyurl.com/2v24ho

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Money $marts: Insurance fix puts everyone at risk
By Gerry Kramer
Friday, February 2, 2007

The concept of insurance is thousands of years old, first practiced by
Chinese traders in the 3rd millennia BCE. Its central elements are therefore
well understood. Risks are assessed in accordance with the likelihood of an
event happening. Premiums are charged to accumulate enough capital to pay
off claims while leaving enough for the insurance company to profit, pay
shareholders a return and retain capital for the future.

Extraordinary claims due to unanticipated events can put you out of
business. Insurance is therefore not an eleemosynary (charitable) endeavor
unless, of course, the government is involved.

Blaming “greedy” insurance companies for higher property insurance premiums
is pure political voter appeasement oration and irrational economics. Since
1990, insurance companies have paid out some $10 billion more in claims in
Florida than they received in premiums. Perhaps this is because of the
unprecedented (i.e. unpredicted) number of hurricanes hitting Florida’s
shores (duh!). If an event has a high degree of certainty to occur (e.g.
more hurricanes), insuring against it is very costly. That’s why sky divers
are basically uninsurable. Would you sell a life insurance policy to someone
on death row?

The reform bill forces insurance companies to lower their rates while
simultaneously Florida expands its role through Citizens Property Insurance
Corp. as “the insurer of last resort” to about 40 percent of the homes in
the state. Moreover, property owners are allowed to choose higher
deductibles, forego wind damage and home content coverage and spread out
premium payments. All these choices give the artificial appearance of lower
premiums, but do not mitigate risk.

The short term fix (“reform”) for property insurance in Florida is thus a
ticking financial fiasco time bomb. If a major hurricane (or two) hits
Florida again, underinsured property owners will face billions in losses and
the State of Florida will have to speedily come up with more billions to
bail out Citizens. Inland homeowners would have to pay higher premiums for
years.

In addition, potentially every Florida resident could have to chip in
(higher taxes) to cover the losses. Of course, all this is moot if there are
no hurricanes. But that’s what we’re betting on, isn’t it?