Guest AuthorFlorida is gambling against Mother Nature. We’re entangled in a decades-long game of chance, hoping to dodge her strikes.
But hurricanes happen, and it’s only a matter of time before another storm hits our shores. Even if it’s not this year, Florida will be directly hit by a hurricane and our current property insurance system leaves the state vulnerable.
Florida pays for hurricane damage after the fact by assessing a “hurricane tax” on most types of insurance policies, including those that cover homes, cars, boats, and motorcycles.
You can check your insurance bill now – there’s an assessment included on it that is collected to pay off the damage from Wilma, a 2005 hurricane. Florida policyholders, including those who moved to Florida after 2005, have been paying for that damage for several years.
After analyzing Florida’s property insurance system, Florida TaxWatch has called for returning Citizens Property Insurance Corporation (CPIC) to be an insurer of last resort, as was its original intent.
CPIC is a nonprofit, tax-exempt, quasi-governmental corporation whose public purpose is to provide insurance protection to Florida property owners throughout the state.
The company holds more than 1.2 million policies and more than $375 billion in exposure. Many of its policies are concentrated in two parts of Florida: the southeast, which is most vulnerable to hurricanes, and West-Central Florida, which is most vulnerable to sinkholes.
While Florida hasn’t sustained a direct hit by a hurricane since 2005, sinkhole claims have depleted much of the reserves that should have been used for hurricane damage.
CPIC and the Florida Hurricane Catastrophe Fund (Cat Fund) have enough reserves to cover a moderate hurricane. However, if the state is hit by a large storm, or several storms as happened in 2004 and 2005, the damage could exceed reserves and Florida policyholders will pay the costs for years to come.
The risk to Floridians and the economy will continue to be excessive if CPIC is not required to reduce its exposure. Recently, the company has done away with close to 300,000 policies, but far too many Floridians are still insured below market rate.
These citizens have subsidized policies, which will put the state in jeopardy when a hurricane hits. The more than 1.2 million policies carry $375 billion in exposure, which averages more than $300,000 per CPIC policy.
By moving more policies into market-oriented insurance rates, the risk to policyholders and the state is reduced. With less risk, it is less likely that taxpayers will be forced to pay assessments.
Hurricanes are a threat that will leave taxpayers unfairly paying for risk taken on at subsidized levels, and it’s only a matter of time before a storm will strike the state.
On Sept. 11, Humberto was named as the first hurricane of the 2013 season. Although having the first named storm is unusual so late in the year, we are still in the heart of the season.
Florida’s legislators must continue to reform the CPIC until they are no longer putting taxpayers in danger of paying for storm damages.
