In the aftermath of the catastrophic hurricanes of this decade, property insurance premiums skyrocketed in coastal states, particularly in Florida-a peninsula in which almost every square foot of land is exposed to immense storm damage.
Legislatures in many states grappled with the problem of what to do in order to maintain the availability of property insurance without consumers being totally priced out of the market. The states with the two most contrasting approaches were Louisiana and Florida.
In Florida, the current Republican governor, Charlie Crist, campaigned for office on the promise of putting pressure on insurance carriers to keep coverage levels high and rates low. Crist’s populist rhetoric helped him win the election, but it backfired as a “solution” to the property insurance crisis. Crist and the Florida Legislature-along with the Insurance Commissioner-threw roadblocks in the path of insurance carriers seeking rate increases to offset their exposure to storm losses. State officials also attempted to mandate that any carrier writing automobile insurance in Florida had to write property insurance as well. Crist and Company also greatly expanded the state’s catastrophic insurance fund and the state-backed insurer of last resort.
Those actions put billions of dollars of potential liability on all policy holders and taxpayers in Florida.
The response of the insurance industry in Florida was predictable. Some carriers pulled out of the state and others stopped writing new policies since the rates they were allowed to charge were not sufficient to pay for potential losses. Things got worse for the property insurance market in Florida last week. State Farm–the largest private property insurer in Florida–announced that it was totally pulling out of the property insurance market.
In contrast, Louisiana chose to go a different route.
Hurricanes Katrina and Rita devastated the political fortunes of then-Governor Kathleen Blanco. It would have been very easy for Blanco, a Democrat, to take the populist approach and attempt to restore her popularity by attacking the insurance companies. If she were a total political animal like Governor Crist, she may have taken that course. But she knew such actions would only make matters worse by decreasing coverage levels and driving premiums even higher. Governor Blanco took steps to make Louisiana a more attractive market for the insurance industry without selling out the interests of policy holders. She passed incentive legislation that actually resulted in more property insurance availability in the Bayou State. Some in the legislature pushed her to sign on to the Florida approach, but she refused-and Louisiana is better off for it.
In Louisiana, we have actually taken over 40,000 policies out of our insurer of last resort, dropping the number of policy holders in it to pre-Katrina levels. In Florida, the state-backed residual market company is now taking on a lion’s share of property damage risks in a very risky state. Premiums in Louisiana-while certainly not low-are adequate enough to maintain a sound private market here. In Florida the rates are high and don’t include the hidden cost consumers will pay in higher taxes and premiums in all lines of insurance, especially if another major hurricane slams into the state.
Governor Crist is a man riding on a tiger. It may be thrilling right now, but when the storms hit, he will be the first meal the tiger devours. Governor Blanco may no longer be in office, but she can hold her head high with the knowledge that her response to the insurance crisis may not have helped her in the short run politically, but it has been proven right in retrospect.
Thanks, Governor.
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