Any discussion about reforming state-run Citizens Property Insurance should begin with two questions: Why does Citizens exist? Why has it become Florida's largest property insurer?
The answer to both questions is the same: because of a lack of reliable and affordable private insurance.
The failure to adequately address this fundamental problem may be why the Florida Senate's latest attempt to reform Citizens has run into trouble -- first with outraged Citizens policyholders, then with Gov. Rick Scott, now with Republican senators from coastal communities.
The Senate bill (SB 1770) seeks to limit Citizens' growth, primarily by jacking up rates for new customers.
In several coastal counties, those rates would rise by 60 percent or more; in some they would double. In Sarasota County, new rates would rise by an estimated 37 percent; in Manatee it would be 27 percent.
Growing concern among some Senate Republicans about the proposed increases -- and their potential impact on Florida's critical real-estate economy -- forced the bill's sponsor to pull it from consideration Tuesday just before a scheduled floor vote.
The sponsor, Republican Sen. David Simmons, promised to further change his already heavily amended legislation and try to build "consensus" before putting the bill to a full vote this week.
The real weaknesses
But the flaws in Simmons' bill can't be fixed in a few days. And the break in the legislative action gives lawmakers, the governor and the public time to consider why Citizens was created in the first place and why this bill fails to address the real weaknesses in the state's property insurance market.
The Legislature created Citizens in 2002 to serve homeowners in high-risk areas and others who couldn't find affordable private coverage.
Major insurers like Allstate and State Farm had been pulling out of Florida's coastal counties or reducing their exposure since 1992, when Hurricane Andrew struck. The pullout accelerated after multiple hurricanes hit Florida in 2004 and 2005.
These top insurers have shown no inclination to return to Florida's coastal areas, where most of the state's population lives, even though insurance premiums have increased substantially in recent years.
Instead, the private market is dominated by small, often undercapitalized insurers.
Last year, the state's own Office of the Insurance Consumer Advocate said these insurers would be "as much or more of a financial risk" than Citizens if a hurricane hit.
The risk is largely self-inflicted. As the Herald-Tribune's 2011 Pulitzer Prize-winning series showed, Florida's property insurance regulators not only permitted small insurers to carry dangerously low reserves but encouraged them to take on more policies than they could safely cover.
Citizens, on the other hand, has built up its reserves during Florida's current seven-year streak without hurricanes.
On April 9, Citizens CEO Barry Gilray told legislators that the corporation had enough funds to pay for a 1-in-50-year storm -- basically a Category 5 hurricane like Andrew, which caused $26.5 billion in damage.
Is it any surprise that many Florida homeowners prefer Citizens over its undercapitalized private competitors?
Other assessments ignored
Yet, Simmons and the other Senate Republicans -- including Sarasota County's Nancy Detert and Manatee's Bill Galvano -- who have backed SB 1770 apparently feel that the free market doesn't apply in this case.
The proponents argue that rate increases for new customers -- beyond the 10 percent annual increases already imposed on all Citizens policies -- are needed to force property owners into private insurance. They warn that if a hurricane hits and Citizens can't pay its claims, all Florida policyholders -- whether Citizens clients or not -- will be assessed to make up the difference.
But what the rate-hikers neglect to say is that assessments are also imposed when a private insurer fails to pay its claims. And, based on the Insurance Consumer Advocate's analysis, bailouts of private companies are much more likely than a "hurricane tax" for Citizens.
Of course, any proposal to raise property insurance rates is political dynamite. Floridians already pay some of the highest rates in the country, and Simmons' plan to boost them higher has generated public outrage.
Gov. Scott, worried about his chances for re-election, advised Simmons to drop a provision in the bill that would have raised the statutory cap on the yearly Citizens rate increase from 10 percent to 13 percent.
But that change might be enough.
"The governor wants to keep the cost of living low for Florida families while reducing the risk of ... policy holders paying a hurricane tax in the event of a major storm," Scott spokesman John Tupps told Herald-Tribune reporter Zac Anderson. "Any final legislation the governor signs must meet both of these goals."
Contact your local senators
If Scott, a longtime critic of Citizens, has doubts about Simmons' bill, will Republican senators in coastal communities -- such as Detert and Galvano -- feel free to opt out?
In any case, it's a good time for those who hold some of the 90,000 Citizens policies in Sarasota and Manatee counties to offer their senators some advice: Stop trying to force people into private insurance; instead, demand that private insurers provide affordable, reliable policies that Floridians will purchase by choice.