George Gibbs Center for Economic Prosperity

The Cal⁠i⁠forn⁠i⁠an: 10-s⁠t⁠ep plan could end proper⁠t⁠y ⁠i⁠nsurance blues

By: The James Madison Institute / 2014

State officials know that getting blamed for property insurance problems ranks right up there with tax hikes on the list of politically toxic issues. So it’s tempting for lawmakers and regulators to avoid making the tougher reforms in an insurance marketplace that, ironically, also carries the risk of a huge tax hike.Adding to this political inertia is the fact that Florida has gone through eight straight hurricane seasons without a major storm. That has significantly lessened the sense of urgency felt in the wake of eight hurricanes in 2004-05 that devastated Florida with $30 billion in insured damages.Florida’s property insurance marketplace became a mess on a scale not seen since the aftermath of Hurricane Andrew in 1992. The state-run Citizens Property Insurance – ostensibly Florida’s “insurer of last resort” – became the largest property insurer, placing a Cat 5 financial risk on the backs of all Floridians.Here’s the problem: If a big storm struck a major urban area – or if a series of storms crisscrossed the state – Citizens and the state’s catastrophe fund (Cat Fund) on which Citizens relies wouldn’t have enough money to pay all the claims.To get the money, Florida – its tax base and credit rating damaged because of widespread property damage – would need to go hat-in-hand to Wall Street and borrow record amounts of money.State law would require a tax on every property and auto insurance policy. In such a scenario, elected officials would refuse to impose the fiscally prudent rate hikes necessary and the state-sponsored insurance hole would be dug even deeper.Granted, some progress has been made. Citizens is being downsized by transferring policies to the private sector. And the Cat Fund is gradually being right-sized. Yet enormous fiscal and political risks persist, and elected officials need to act even faster.Coming right on cue, there is a new study from The James Madison Institute that says it all in its title: “Ten Reforms to Fix Florida’s Property Insurance Marketplace – Without Raising Rates.”In general, the 10 reforms highlighted in this study authored by JMI adjunct scholar R.J. Lehmann of Washington, D.C.’s R Street Institute call for more transparency in the insurance marketplace, more safeguards against conflicts of interest, and legal reforms to prevent predatory law firms from driving up insurance rates by filing bogus claims.This study explains complex issues in plain English, and it’s posted on JMI’s website, these reforms can be achieved without raising rates, it offers elected officials a way to diminish the odds of a future financial and human disaster by acting now.Leaders from throughout Florida will gather at the Florida Chamber of Commerce’s Annual Insurance Summit on Jan. 15-17 in Orlando to focus on solutions to Florida’s property insurance blues.Gov. Rick Scott, chief financial officer Jeff Atwater, insurance commissioner Kevin McCarty and insurance industry officials will participate, and JMI looks forward to joining the conversation as we work toward solutions. Learn more and register for the conference at