TALLAHASSEE, Fla. – Oct. 9, 2014 – The cost of property insurance is a major issue to many Florida homeowners and Realtors. A hurricane hasn't hit the state in nearly nine years, but that hasn't dampened property insurance rates.
The two candidates for governor facing a November election, Republican Rick Scott and Democrat Charlie Crist, approach the property insurance problem differently. The state has historically tried to keep property insurance rates low while simultaneously bringing more private insurers into the Florida market to reduce overall risk. Historically, a move to achieve one goal has had a negative impact on the other goal.
According to University of South Florida political-science professor Susan MacManus, voters' opinions about the property insurance challenge could be a deciding factor in the election, in part because observers expect a lower voter turnout in a non-presidential election. A recently released Sunshine State Survey, conducted by the University of South Florida and the A.C. Nielsen Company, found that property insurance is one of the top six "stressors" for homeowners in Florida, along with food and maintenance costs, health care, utility bills and the potential of no longer being employed. MacManus said the survey found that concerns about property insurance have risen since a prior survey in 2012.
Property insurance under Gov. Scott
During his four years serving as Florida's governor, Scott has maintained a free market approach to the industry. That approach includes efforts to attract more private insurers to Florida, push thousands of policyholders out of state-owned Citizens Property Insurance Corp. and reduce the items it covers.
The average annual premium for homeowners' policies has grown from $1,544 to $1,933 under Scott. Meanwhile, Citizens coverage has been reduced for many customers to just main buildings, leaving unprotected awnings, gazebos, Tiki huts, and most carports and screened-in pool enclosures, which are more vulnerable to damage in a hurricane.
"Homeowners are very attuned to that, and homeowners tend to vote," MacManus says.
The shift of policies from state-owned Citizens has accelerated in the past two years through large "take-outs," in which thousands of Citizens policies are offered to private carriers. Also, a new electronic clearinghouse forces first-time policies and renewals to go with a private firm if the rates are somewhat comparable. Through Aug. 30, 124,995 policies have exchanged hands through the "takeout" process this year. In 2013, 386,787 policies were shifted from Citizens to private insurers.
Property insurance under Crist
If elected, former governor Crist has said he will act to reverse the rate increases that have occurred under Scott's free-market watch.
While governor, Crist, then a Republican, backed a temporary freeze on Citizens rates and later a 10 percent cap on annual rate increases. Both were intended to help homeowners after a spate of hurricanes in 2004 and 2005 and during the recession. But they also helped lead to a shift of the state-backed insurer from being a refuge for those who couldn't find coverage into being the state's largest property-insurance company.
"The choice could not be more clear," Crist told reporters while announcing his insurance plan last month. "A governor who took on the insurance industry and lowered rates so families had more in their checking accounts and at the end of the month? Or a governor who let insurance companies raise rates – over 25 percent so the companies and his campaign have more in the bank?"
Insurance risk
Scott spokesman Matt Moon says Crist's effort to hold down rates on Citizens also increased the liability risk for all homeowners. "Florida taxpayers were left on the hook for billions and homeowners were left with fewer options to protect their property," Moon said in a prepared statement. "Under Gov. Scott, Florida has done the exact opposite, reforming and shrinking Citizens Insurance while giving consumers more choice and competition to protect their home."
The insurance industry generally backs Scott, and their backing has translated into more dollars for Scott's reelection campaign. Since the start of 2013, Scott has received roughly $2 million in contributions from the property- and auto-insurance industry through his campaign. Over the same timeframe, Crist and a closely aligned political committee, Charlie Crist for Florida, have received about $75,000 from those with ties to the insurance industry.
Lynne McChristian with the Insurance Information Institute labeled the Scott model as "pay now," and Crist's model as "pay later."
"The pay-later model is the riskiest," McChristian says. "We can't change Florida's hurricane history, and no one believes this nine-year reprieve means a permanent end to major storms. … Forcing private insurers to roll rates back to where they may be actuarially unsound is definitely unfriendly to consumers. It gives consumers fewer choices because it can cause insurers to restrict how much risk they can take on."
A middle approach
Jay Neal, president and CEO of the Florida Association for Insurance Reform, said a non-political middle ground is needed between Crist simply rolling back rates and Scott wanting to further deregulate the industry.
"I think we'd be better off, overall, if the extremes were not the policy – if we found a way to lower rates, but do it in a way that is actually paid for, actually responsible," Neal said.
Neal contends rates could be lowered about 7 percent by reforming the reinsurance industry, which is heavily based offshore.
Meanwhile, Neal added that in a state where "there isn't a long-term approach," there is a need to keep regulations in place on the industry to ward off lobbyist attempts to give insurers unfair advantages over policyholders.
"There is a price that the industry pays for having anti-trust protection, and one (of those) is to have a state regulator ensure they're treating policyholders fairly," Neal says. "If we can help build sort of a middle approach, we'll have some stability. If you're out of balance, sooner or later someone is going to tug it back in the other direction, and that's where we have the pendulum effect. It never really stops, it just goes up the other end of the spectrum."
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