Florida Governor Charlie Crist was in Baton Rouge recently to talk to Governor-elect Bobby Jindal about the insurance problems facing both states. Governor Crist is a very amiable person and a co-member with Jindal in the Republican Governors Association.
Much of their discussion focused on joint efforts to convince Congress to pass legislation that would create a national catastrophic insurance fund to help alleviate insurance availability and affordability problems in the wake of natural disasters like hurricanes. While the odds are probably long against such legislation passing, it is certainly a reasonable project for the governor and the governor-elect to be pursuing.
Aside from the national catastrophe fund, one would hope that Governor-elect Jindal doesn’t follow Governor Crist’s lead in how to handle a property insurance crisis. Last January, Governor Crist convened a special session of the Florida Legislature to address the rising cost and diminishing availability of property insurance in the Sunshine State. What passed did little to help the situation in Florida and, instead, made it worse.
If the cost of property insurance in Florida is going down, it is only because property values are plummeting and not because of any legislation passed by Crist and Company. The Florida approach was simple—and stupid. First, they removed all of the recently implemented or approved premium increases for Florida’s insurer of last resort. That created an automatic unfunded liability that was addressed by mandating that all other policies on most lines of insurance in Florida would be assessed a surcharge if the insurer of last resort ran a deficit (which it surely will when another hurricane hits the state).
Digging a deeper hole, the governor and Legislature enacted laws that greatly increased the limits for coverage by the state’s catastrophe fund. The end result was a potential $40 billion or greater hit to Florida’s treasury if multiple hurricanes again plow into the state.
Governor Crist also pushed through legislation that attempted to force insurance carriers to write policies in Florida—hardly a free market approach to the problem. Numerous carriers responded by refusing to write or simply withdrawing completely from the Florida market. Anyone who thinks the Florida approach to addressing an insurance crisis is a rational and reasonable one simply doesn’t understand both insurance and economics. Hopefully, when Governor Crist left Louisiana, his radical and unsuccessful ideas left with him.
In addition to touting his Big Government approach to insurance, Governor Crist is selling a regional compact to deal with property insurance problems. On the surface that sounds like something Southeastern states would be interested in, since most of them have significant exposure to hurricane problems. The problem with that approach can be summed up in one word: Florida. Every square inch of Florida is subject to catastrophic wind damage from hurricanes. That isn’t true in the other states. That being the case, the other southern states aren’t likely to sign on to be insurers of Florida’s losses.
Both Florida and Louisiana are fortunate that no significant tropical storms have struck them in the last two years. The absence of malice from nature has relieved some of the upward pressure on property insurance rates and downward pressure on availability. Louisiana has also made some progress in attracting new carriers to underwrite our policies. We have done it by taking a free market—not Big Government—approach to the problem. Interestingly, some of the carriers coming here are leaving Florida. Governor-elect Jindal should remember that when he develops his plans for property insurance improvements in Louisiana.
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