George Gibbs Center for Economic Prosperity

Ed⁠i⁠⁠t⁠or⁠i⁠al: Flor⁠i⁠da bu⁠i⁠lds s⁠t⁠reng⁠t⁠h aga⁠i⁠ns⁠t⁠ d⁠i⁠sas⁠t⁠er

By: Guest Author / 2015

Daytona Beach News-Journal Editorial: Florida builds strength against disaster — November 2, 2015

If you want to understand why Florida needs to be prepared for major catastrophes, look at the news coverage of a really big storm. You’ll see people standing knee-deep in dirty floodwater, or slumped against the walls in emergency shelters; homeowners looking at oak trees where their kitchen ceilings used to be, or shop owners hauling out cases of melted ice cream.

There’s little that can alleviate the misery that comes right after a storm. But the state can look out for property owners responsible enough to protect themselves against catastrophic losses, by making sure that property insurers are healthy enough to pay losses when disaster strikes — and help get Floridians back on their feet as quickly as possible.

The reality is, of course, that most Florida residents don’t even think about property insurance when the sun is shining, except to grumble when they pay their premiums. But those who are paying attention might have noticed some very good news from Tallahassee about the strength of Florida’s insurance market.

Every year, state regulators — under the aegis of Chief Financial Officer Jeff Atwater — put insurance companies through annual testing. This year, all of the 112 private insurance companies in Florida reported that they had enough resources (including “reinsurance,” which are third-party policies that provide backup if companies can’t pay claims) to meet the demands of a 1-in-100-year storm event. Even better, 67 Florida companies passed a scenario in which multiple major storms hit the state — the so-called “catastrophic stress test.”

This year’s test was based on three different storm scenarios: The 1921 late-season Tampa Bay hurricane that exited the state over Volusia County and did an estimated $10 billion in damages (in 2015 dollars); a 1947 Category 4 hurricane that hit Fort Lauderdale and killed 17 people; and the 2004 sequence of hurricanes Charley, Frances, Ivan and Jeanne that rained devastation across the state. That last scenario — where four storms pummel the state in one season — is new this year.

The increased pressure is timely. Over the past few years, Florida officials have been pushing the state’s publicly backed “insurer of last resort,” Citizens Property Insurance, to move property owners over to private insurers — many of which confused Floridians have never heard of. In 2012, Citizens carried 1.5 million policies. Now it’s down to less than 600,000. Any company authorized to “take out” Citizens policies was required to pass the stress test. And they all did — which should increase consumer confidence in their new carriers.

The results are not surprising. It’s been a remarkably peaceful 10 years since the 2004-05 storm seasons, when Florida was pummeled by seven named storms in 15 months, and companies were required to use premiums to build reserves. But the exposure is greater than ever before: A recent analysis by the James Madison Institute, a Florida free-market think tank, pegged storm-damage exposure in the state at $2.9 trillion — more than Louisiana, Virginia, Texas, North Carolina, South Carolina, Georgia and Mississippi combined. And a really big storm could put everyone at risk.

The strength of Florida’s insurance market almost certainly plays an unsung role in the willingness of companies to bring investment and jobs to Florida. It might not be sexy — but property insurance is crucial to Florida’s economic health, and Atwater is doing the right thing to keep the pressure on.