George Gibbs Center for Economic Prosperity

Ashev⁠i⁠lle C⁠i⁠⁠t⁠⁠i⁠zen-T⁠i⁠mes: Our Op⁠i⁠n⁠i⁠on: The ⁠t⁠rue cos⁠t⁠

By: The James Madison Institute / 2014

Don Brown, a former legislator, an expert on insurance and now a senior fellow with R Street’s Florida project, tells of a trick he sometimes plays.He’ll ask a group to whom he’s speaking to recommend the best restaurant in town. He’ll mention that he’s bringing some friends, and then invite the person whose suggestion he chooses. Oh, he’ll say, and would you mind paying? You can imagine the reaction.Then he says he was just joking and tells the person that he will pay. Suddenly, the invitation is accepted.Which is one way of proving a point from “The Law” by Frederic Bastiat: “There is also another tendency that is common among people. When they can, they wish to live and prosper at the expense of others.”That pretty much sums up one of the problems with property insurance in Florida.Along our coastlines and in sensitive, flood-prone areas, people are building — and then insuring these buildings thanks to subsidies from others.Year after year, the biggest problem with Florida’s property insurance system has been two-fold: Citizen’s Property Insurance Corp. and the Florida Hurricane Catastrophe Fund. Citizens draws fire for offering below-market rates and for its power to charge assessments on every property and casualty policy in the state, though legislation last year started to put limits on Citizens. The CAT Fund, which offers reinsurance to back insurers’ policies, is seen as a catastrophe waiting to happen — though eight years without a hurricane have made it more financially stable.Still, in a report suggesting ways to reform Florida’s property-insurance marketplace, R.J. Lehmann of the R Street Institute wrote late last year that the state has “a dysfunctional property insurance system that has distorted pricing, undermined competition, and placed a heavy burden on the state’s taxpayers.”The solution, simply stated, is a free-market approach — making Citizens once again “the insurer of last resort” and making the cost of insurance reflect the true risk.

This approach has created an alliance called Stronger, Safer Florida. In one way, it’s an unlikely alliance — how often do you see the Florida Wildlife Federation, 1000 Friends of Florida and Audubon of Florida teamed up with Associated Industries of Florida, the Florida Chamber of Commerce and the James Madison Institute?Jay Liles, a policy consultant with the Florida Wildlife Federation, said his group saw a common goal in insurance reform. Regulation wasn’t working in keeping development out of Florida’s vulnerable areas, so perhaps the free market would.The concerns go beyond the mere price of a policy, though. Mr. Brown stresses life safety issues, or factors people should consider before they build. Can you evacuate safely? Can you shelter in place? What is the emotional cost of seeing a home destroyed?This legislative session, this alliance has a number of goals. Companion bills sponsored by Rep. Bill Hager, R-Boca Raton, and Sen. Alan Hays, R-Umatilla, would reduce the exposure of the CAT Fund. Reformers also would like to take the risk of commercial property out of Citizens, move more Citizens policies to the private market and end Citizen’s wind-only insurance. The James Madison Institute offers Mr. Lehmann’s “Ten Reforms to Fix Florida’s Property Insurance Marketplace — Without Raising Rates” (, in an election year, anything that threatens a rate increase might be a non-starter. But it’s important that Floridians continue to realize that insurance is not free but rather is a function of the market.Mr. Brown tells another story, of a grocery store bag boy driving home and seeing a new Corvette for sale.He asks the price, but realizes this is not the car for him. “Price does far more than compensate a seller,” Mr. Brown said. “It sends a signal on the appropriateness of human behavior.”