Our View

So Mr. Self-Proclaimed Vox Populi, Florida Democratic gubernatorial candidate Charlie Crist, wants to take on his opponent, Republican Rick Scott, on the issue of property insurance.

If you know the whole story, it’s nauseating — Crist’s populist pandering.

Don’t fall for it.

Surprise! Crist is campaigning to bestow political gifts on Florida property owners — lower property-insurance premiums. In his 11-page policy paper on property insurance — chock full of the predictably inflammatory words to color Scott as a nasty, Big Business cronymeister — Crist, of course, paints himself with his usual sappy wonderfulness:

“As the People’s Governor,” says the policy paper, “Charlie Crist always put the interests of Floridians before big corporations, lobbyists and other special interests. During his first term, Charlie took on the insurance companies to lower the cost of insurance and protect Floridians’ policies.”

Prominently displayed in this pander paper is a graphic comparing average property-insurance premiums during Crist’s term versus those during Scott’s (See box below).

What Crist doesn’t provide is the context that explains how he and a wimpy, Republican Legislature achieved the lower rates. Like all politicians concerned most with their re-elections, they opted in 2007 for political popularity rather than doing what responsible adults should have done.

If you remember, the lower rates came in the wake of the 2004 and 2005 hurricane disasters in Florida, which inflicted $52.4 billion in property damages. And they came when neither Citizens Property Insurance, the state-owned property insurer, nor the Florida Catastrophe Fund, a state-owned reinsurer for property insurance companies, had enough money to fulfill their policy obligations in the event of another major disaster. Crist and every legislator knew that if Florida were hit in 2006, 2007 or 2008 with major storms, there would have been a financial and insurance crisis in Florida dwarfing the combined damages of Hurricanes Charley, Ivan and Wilma. But they went ahead anyway.

As private insurers declined to take on more property risk — for fear of wiping out themselves and not being able to fulfill future claims, Crist and the Legislature in 2007 rolled back and froze Citizens’ rates at 2006 levels. In addition, they allowed Citizens to write policies for any Floridian who received a quote for coverage from a private insurer more than 15% greater than Citizens’ rates.

“This imposed a de facto price control on Florida’s property insurance market,” according to the James Madison Institute. And if you understand economics, you know that when you control prices and roll back prices, you create shortages in supply. Private businesses will not operate in a market where they cannot cover their costs.

No one should have been surprised, then, that private insurers quit writing new residential policies and began cutting back on renewals; they knew their regulated rates were not actuarially sufficient. As a result, Citizens Property Insurance, which was originally set up to be a high-priced insurer of last resort, quickly became the largest property insurer in Florida. But what too many Floridians did not and have not realized, the size of Citizens and the value of the properties it insured put all Florida taxpayers at risk for paying Citizens’ claims in the event the state-run insurer could not pay them.

Under state law, Citizens has the authority to impose a tax on nearly every insurance policy issued in the state. If it runs a deficit, which it did after 2004 and 2005, it must first impose surcharges on its own policyholders and then, if necessary, assess every property and auto insurance policy issued in the state to meet its obligations.

This is exactly what happened. Since 2007, all Florida property and car owners have been paying a 1.3% Citizens assessment and a 1% Cat Fund assessment on their annual premiums. According to the R Street Institute, a Washington think tank that tracks Florida’s property-insurance industry, Floridians have paid $1.5 billion in Citizens’ assessments and $2.9 billion in Cat Fund assessments — all because of the anti-consumer policies of Crist and legislators.

Yes, anti-consumer. By underpricing the real cost of insurance and basically scaring off market competition, millions of Floridians have been forced to subsidize the policies of those Florida property owners who live in the most vulnerable parts of the state.

But the way Crist sees it, enacting low, underpriced insurance rates is done under the guise of being “the people’s governor” and “taking on” the rapacious insurance companies.

This is what he wants to do again — expand the role of the state in property insurance, placing more risk and more tax surcharges on all Floridians and obligating future generations to pay for the underpriced insurance of today.

That’s modern-day progressive, populist, pandering politics.

Now contrast Crist’s insurance agenda with that of Scott over the past three years.

Consumers may complain about higher property-insurance premiums, but this is what should have happened after Hurricane Andrew in 1992 and after the 2004 and 2005 hurricane disasters. Market forces should have been left to find their proper equilibrium and reflect the proper actuarial risk.

What’s more, Scott has focused on reducing the size and risk of Citizens Property Insurance, with the intention of returning it to its original mission of being an insurer of last resort. The effect of that is good for all Floridians. The less exposure Citizens has, the less likely Florida taxpayers will be required to cover any of Citizens’ future obligations.

Yes, Scott supported Republican legislation that removed Crist’s freeze on rates. Lawmakers adopted what they call a “glide path” that allows annual rate increases of up to 10% until rates reach an actuarially sound level, which will take several years. But this, too, is part of making up for past sins during the Crist years; someone had to have the courage to do it. Keeping the status quo would have left Floridians exposed to paying even higher assessments after a major storm.

Scott’s and the Legislature’s efforts to reduce the state’s role in property insurance is working. From a high of 1.6 million policyholders in 2006, Citizens’ policies this year dropped to 934,000. Its total exposure has dropped from $510 billion in 2011 to $291 billion this month.

This is more good news for Florida taxpayers. It means more private insurers are competing in the marketplace; the government/taxpayer-owned Citizens Property Insurance is shrinking; and taxpayers’ potential future liabilities and assessments are shrinking.

What’s more, in July, Florida’s Office of Insurance Regulation announced the Florida Hurricane Catastrophe Fund would finally end its 1.3% assessment on nearly every property insurance policy to pay for the Cat Fund’s borrowing after the 2004 and 2005 storm seasons. OIR noted the charge will be ended 18 months earlier than originally expected.

And as a final indicator that Florida’s property-insurance market and legislative policies affecting property insurance are improving, the R Street Institute for the first time in a decade raised Florida’s grade for its overall insurance business climate. Florida rose to a “D” from an “F.”

Earning a “D” is nothing about which Scott and the Legislature over the past three years can boast. But compared to the distance between that “D” and the “F” under Crist (the lowest rated state), there is a big difference: Doing what’s politically popular versus doing what’s right.

— MW