Newspaper article Sarasota Herald Tribune

Insurers at Risk

Newspaper article Sarasota Herald Tribune

Insurers at Risk

Article excerpt

Advocate's report cites concerns with Florida's private market

Gov. Rick Scott and Florida's legislative leaders have frequently sounded alarms over the potential insolvency of the state-run Citizens Property Insurance Corp.

If a catastrophic hurricane hits, they warn, Citizens' reserves will be insufficient to pay the claims and, by law, it will have to assess insurance policies statewide to make up the difference.

We hope that Scott and the Legislature are just as worried -- if not more so -- about a state agency's report that inadequately capitalized private insurers in Florida are more likely than Citizens to fail and force post-hurricane assessments.

The report, by the state's Office of the Insurance Consumer Advocate, should cause the governor and Republican lawmakers to:

1. Rethink their ideologically driven campaign to shrink Citizens -- by raising its rates and reducing its coverage -- and push consumers toward undercapitalized private insurers.

2. Demand tighter state regulation and monitoring of Florida's private insurance market.

The likely scenario

The Consumer Advocate's report, "Potential Assessments from Florida Hurricanes," issued in April, found that private insurers "are as much or more of a financial risk" as Citizens in the event of a major hurricane, the Herald-Tribune's Zac Anderson noted in an article published Sunday.

In the most likely scenario -- a storm causing $21 billion in damage -- "Citizens would not need any assessment money, while a $200 million bailout would be needed to pay the claims of private insurers that fail," Anderson reported.

Only in the Consumer Advocate's worst-case scenario -- a hurricane causing $50 billion in damage -- would Citizens pose a much greater financial risk than private companies. Citizens would need to make assessments of roughly $10.3 billion, double the estimated $5.1 billion in assessments required to cover private insurers' claims.

Damage of such magnitude would exceed that of Hurricane Andrew, the Category 5 storm that devastated parts of South Florida in 1992. It caused about $26 billion in damage, or roughly $42 billion in today's dollars.

Such a storm is expected to occur once every 100 years, the Consumer Advocate pointed out, while the likelihood of the $21 billion scenario is once every 25 years.

The reason that Citizens -- despite the criticism by Scott and others -- is better able than private insurers to handle a major hurricane is partly the luck of the weather, and partly the failure of Florida's regulatory system.

Because Florida has gone an unprecedented six years without a hurricane strike, Citizens has been able to accumulate $5.6 billion in reserves. Citizens, like some private insurers, also has purchased reinsurance from the state-run Florida Hurricane Catastrophe Fund. …

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