In 2007, former Governor “Hurricane Charlie” Crist championed legislation which imposed punitive regulatory requirements on homeowners’ insurance companies. It froze insurance rates for Citizens Property Insurance Co. (a government owned company created by the Florida legislature) at 2005 levels, and made any homeowner eligible for Citizens who was paying insurance company rates more than 15% above Citizens’ rates. Private insurance companies couldn’t compete. Many insurers left Florida entirely or radically reduced their number of policies throughout the state. Homeowners were forced to go to Citizens, which last year increased its number of policies over 1.3 million.

Citizens recently reported to the legislature that it is in “its best financial position ever” with claims-paying capacity of over $14 billion. But hold on: in reality, there is only $7.6 billion in cash available for Citizens to pay claims of $10 billion projected from a Wilma-size storm. The outlook blackens with claims of $22 billion projected if an Andrew-size storm makes landfall. The State will levy taxes on every Floridian’s insurance premiums to make up the deficits. Did I just hear you say, “WHAT?” Yes, you and I and every homeowner in Florida will foot the bill, which won’t be chump change.

In short, Citizens primarily counts on post-event taxes to fund hurricane claims, as opposed to private insurers which must charge actuarially sound premiums to build sufficient cash reserves to pay claims.

This is one of the most politically challenging issues facing the 2011 legislature and Governor Scott. The key change they must make is to allow insurers to compete with each other, not with a tax payer-subsidized government insurance company. The second key change is to return Citizens to be the financially sound insurer of “last resort”.

Governor Rick Scott and legislative leaders have pledged to do this, but they must corral enough votes to get it done. Most Democrats will oppose reform, so they can blame Republicans when a hurricane hits. Republicans who were in charge in 2007 when Governor Crist’s draconian anti-free market insurance legislative proposals were adopted will be blamed by the Ds for the tax increases if a big-boy storm hits.

Immediately following the rapping of the gavel closing the 2007 legislative session, Governor Crist stood in the Capitol rotunda, between the chambers, and proudly declared “We have finally put the last nail in the insurers’ coffin”. Crist neglected to mention that he was also the coffin-maker for Florida’s economy if the Big One rolls in from the Caribbean.

Republicans, with a two-thirds legislative majority and a supportive Republican Governor, have the opportunity this year to clean up the homeowners’ insurance train wreck. If they fail to do so, given the current Federal political makeup and budget deficit, there will not be a Washington bailout to mitigate the political damage to Florida’s GOP when the Big One makes landfall. If Republicans want to stay in power, they need to clean up this mess.

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John R. Smith

John R. Smith is chairman of BIZPAC, the Business Political Action Committee of Palm Beach County, and owner of a financial services company. He is a frequent columnist for BizPac Review.

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