Citizens Insurance Crisis: Is it even real?

The press has been having a field day. There is real controversy in the mismanagement of Citizens Insurance. The issue came to a kind of news fruition worthy of daylight with Citizens’ ham-handed re-inspection program that typically resulted in a doubling or more of rates that had been reduced based upon mitigation discounts determined by licensed independent inspectors working at the expense of the home owner.

The new program, launched about a year ago, meant mandatory re-inspections at the expense of Citizens, or loss of all mitigation discounts. The inspector who came to my home told be straight out that if he allowed previous mitigation certifications, such as for roof strapping, that he declined to inspect due to lack of easy access, he would never get another inspection assignment. Now there’s an independent inspection program.

Interestingly, this inspector recognized that I had the proper roof attachment in the front part of the attic but disallowed it all because he could not see the other two-thirds of the roof without crawling through an existing access hole. This problem has apparently been so prevalent in the process of re-inspections that Citizens sent out letters offering to suspend increases due to loss of mitigation at the time of re-inspection for one year to allow time to create access to uninspected portions of the home. Now that would mean cutting into roof supports in order to create access to gabled roof sections. Not a realistic option. But no matter; the rate increases were implemented regardless. In the meantime, notices went out providing notification of reduced coverages on renewals across the board.

So what is this all about? Why does Citizens, with a huge insurance reserve following years of low claims due to the absence of recent hurricanes, need to increase its war chest of reserves? Guess what? This politically created insurer-of-last-resort is the focus of political disaster planning. Much of it seems to derive from the political belief of Senator Joe Negron, recent State Legislature Senate President, who believes that those in the cone of destruction ought to pay for the destruction without bothering the rest of the people of Florida. In short, Senator Negron believes that it is every man for himself, and let private enterprise step up to protect the best interests of the people. Isn’t it nice to know that in the event of another Hurricane Andrew, Wilma or Sandy, we shouldn’t have to depend upon our government or the people of Florida to step up to ensure disaster relief?

Citizens Insurance has reported cash reserves in excess of $6.8 billion against a worst possible case projection of a $14 billion storm catastrophe. To be sure, that now seems a modest estimate in light of the anticipated insurance claims from Super Storm Sandy that may amount to as much as $25 billion spread across a number of insurers. But then, this is a storm that hit the most densely populated and developed region of the United States. Doesn’t the Sandy experience beg the question as to why a high exposure region, like the Mid-Atlantic States region, can attract private insurance carriers and Florida cannot. Is there anything that Florida can do about that?

The debate over insurance reform and reform of the Citizens Insurer-of-last-resort role tends to look only at whether those in the exposed coastal regions should bear all of the costs or should the entire state, as a large risk pool, bear some exposure in order to keep rates reasonable. As it stands, after Citizens has paid out its reserves, after any re-insurance has been paid out and after any available state excess exposure funds have been paid out, all insurance premiums in Florida will be taxed as a fee to cover the additional losses. There is no such tax to build a state catastrophe fund ahead of the predicted catastrophe, which would reduce the exposure for a higher post-catastrophe tax. Common sense has nothing to do with the apparent expectation that a devastated coastal region ought to remain devastated if it cannot pay for its own recovery. It is not exactly what you might call a good neighbor disaster plan.

The value of the exposed coastal regions of the state as a whole is never considered in the debate over how Citizen’s Insurance costs will be managed. This is really about some people who just don’t want to help their neighbors in times of crisis. Those in the less exposed, non-coastal regions of the State dislike discussion that they will benefit economically in the short-run as staging areas for coastal disaster relief. Consider how Miramar and Pembroke Pines benefitted by rapid growth in the aftermath of Hurricane Andrew. Nor do they consider that, with the changing weather patterns, all of Florida is at risk. Remember that Hurricane Wilma cut across the entire peninsula before churning up the Atlantic and dying off the coast of Nova Scotia. The hurricane season of 2012 was notable for the pattern of storms missing South Florida, including the late season storm Sandy that skirted our coasts before hitting New York and New Jersey.

Like good squirrels perhaps we should be thinking about the development of a state, regional and/or national disaster fund that will ensure that private insurance exposure is manageable and that there are adequate well enforced standards to ensure that insurance risk is well distributed and properly funded. Any one of us, regardless of geographic locale, ought to be assured of financially manageable insurance premiums and effective coverage that will provide a foundation for the costs of regional recovery from a disaster that will surely have economic costs double or triple the cost of actual insured losses.