Why do I have to pay when someone else’s property insurance company fails in Florida? Why should you?

The rage over property insurance has turned into an official pastime, but let me get on with that. Let’s start by talking about the additional fees, specifically “refunds.” It’s a fancy word that often means you’re covering someone else’s costs.

My new insurance bill includes three of them:

$82.16 To cover claims that United Property & Casualty Insurance Company (not my insurance company) was unable to pay when it became insolvent last year. The Florida Insurance Guaranty Association stepped in and agreed to a contingency assessment to make up the difference. (This will cover my internet bill for two months.)

$57.51 From a previous assessment by the Florida Insurance Guaranty Association to cover other deficiencies; There were six bankruptcies in 2022. (That’s about half of my typical water bill.)

$154.10 As “reimbursement” to the Florida Hurricane Catastrophe Fund, a type of state insurance pool for insurers, which, my bill states, “provides funds to pay Federal Housing Fund (FHCF) liabilities resulting from previous hurricane seasons.” (This would go a long way toward paying my Duke Energy bill.)

Add them all up, and you get $293.77. The year before, it was even worse — $366.70. This is money I would like to have in my pocket.

Be careful, none of this represents my actual premium, which has gone up a lot this year. I get it. Insurance is expensive because the risks are high and growing in Florida. I have no complaints with my insurance company. However, I have complaints about the system that cost me almost $300 before I even started paying king invoice.

If my home was only insured against normal risks like fire, theft, and the like, I would owe an average US insurance premium. You will too. But my hurricane premium is more than five times higher than the regular risk portion of my insurance premium — even after deducting thousands of dollars to strengthen my home. This is the killer.

Insurance companies are very good at calculating worldly risks. They know how many house fires and burglaries to expect in a year, and they also know that not every home in Tampa Bay will catch fire or be burglarized. It’s the magic of actuarial tables. Insurance companies build a model based on averages to figure out how much you’re likely to pay in a year of claims. They take into account operating costs and profits, then plan insurance premiums accordingly.

Hurricanes are different. How do you get rid of one storm every 500 years? Category 3 explode to Category 5 overnight? As we all know, a single hurricane can destroy billions of dollars worth of homes. This is a range that some insurance companies cannot handle. In a quiet year, the insurance company and its officers can collect piles of cash and collect fees for hurricanes that never come. In any bad year, an undercapitalized insurance company could go bankrupt and leave the rest of us holding the bag empty.

The problem is not that complicated. At its core, our current system doesn’t work well enough. Ask any dreaded homeowner to open her renewal letter and take a peek at the insurance premium. It will get worse. First, we are still building on the coasts, literally in harm’s way. Second, climate change and rising sea levels are making our coasts more vulnerable and potentially making hurricanes more ferocious.

Insurance companies know all this. They won’t take a big risk without a big reward. This cannot just be dismissed as a problem of fraud, abuse and frivolous lawsuits. We live on a big spit of sand in Hurricane Alley. A Category 3, 4 or 5 could hit us from any direction except Georgia – and even that’s not out of the question. In a recent column in these pages, former Florida Senator Jeff Brands, who has studied the issue, wrote that “global investors and reinsurers, who ultimately bear most of Florida’s storm risks, know the risks.” Florida accounts for 25% of insured catastrophe risks worldwide and is the “peak area” on the planet for such losses, along with Japan. Translation: If you want Florida hurricane coverage, it’s going to be expensive.

Consider the conundrum that is Citizens Property Insurance Corp., the state-run insurer of last resort. At least that was the original idea. Citizens will provide insurance to those who cannot buy it on the private market. But now, you can stay on Citizens if private insurers’ premiums are 20% more expensive for similar coverage. Allowing us to stay with a state-run insurance company just because it is cheaper does not mean “insurer of last resort.” Citizens reduced its rolls by 223,000 last year, but it still covers 1.22 million insurance policies. Do you really want to evacuate citizens, as state lawmakers assert? Forcing policyholders into the private market if it is simply an insurance company matches Citizens’ premiums. Otherwise, is it really a “believer of last resort”? Or is it that very scary word – a kind of socialism?

But did you know? Homeowners will hate the idea because they prefer the price and trust the citizens. Too many untested insurance companies have gone bankrupt, leaving homeowners — and the state — in a financial bind. Oh, and in some years, even those of us with private insurance had to pay for a citizen’s cat. Another “compensation”. (To be fair, Citizens said last month that it now “possesses ample reserves and the ability to obtain reinsurance to cover a once-in-100-year storm without having to impose assessments on non-Citizens policyholders.”)

So what to do? The short answer is, something different from what we do now. The state’s “reforms,” ​​such as making it more difficult to sue insurance companies, do nothing to change the amount of damage a future hurricane could do to Florida as climate change, sea levels rise, and construction continues on the vulnerable coast.

More transparency would be a start. If insurance companies want state support, they must open their books to regulators. In a capitalist society, making money is the whole idea, and a reasonable return on the dollar is nothing to be ashamed of or hidden from view. But it’s bad business to gouge payers in good years, then cut them and run when the bill comes due in bad years.

The hard truth is that the market has not solved the storm problem at a price that enough people can afford. If the state has to be involved one way or another, perhaps there is a better way. There are ideas that lack traction so far. For example, State Rep. Spencer Roach, a Republican who lost his home to Hurricane Ian, has introduced a bill (HB 1213) that would shift Citizens from an all-risk insurance company to a state entity offering coverage only for windstorms. This change would allow private insurers to limit themselves to non-storm-related coverage such as fires and theft and compete for customers without fear of a hurricane pushing them into bankruptcy.

Right now, when Florida goes years without a major hurricane — as happened between Wilma in 2005 and Irma in 2017 — those huge storm premiums are a one-way pipeline of dollars flowing from homeowners’ wallets to insurers’ bottom lines. . Homeowners get nothing in return, nothing to save for a rainy day. But imagine instead if the state insured against storm risks and let the market handle the other insurance. In quiet years, storm insurance premiums may build up a huge reserve rather than line the pockets of insurance companies. And in any bad year — and there will be bad years — that reserve will be drawn down. However, it will not be cheap, but the costs could be lower (remember, there is no profit motive) and should stabilize over time. The state has vast resources, and a year’s worth of storm insurance premiums would be a big number.

Can it work? We don’t know yet. But let’s at least let fair-minded experts discuss the matter, rather than reject the idea outright.

Roach’s concept reflects an idea proposed 16 years ago in the pages of Our Opinion by a group of St. Petersburg entrepreneurs. I edited the article in which they recounted that they had come up with a plan to pour every dollar of the storm bonus “into a huge pool of funds to cover only hurricane winds and let insurance companies compete to insure routine fires and burglaries.” Their systematic calculations figured out how the Florida reinsurance startup could become self-sustaining within a decade. In other words, in their estimation, a big problem might have been solved six years ago. “It’s a commercial solution. And someone said at the time: ‘It’s not a political solution.’” And it got nowhere in Tallahassee, a place full of politicians.

So we’re stuck in our current system of “catch-up” and the like, where we pay someone else’s bills from last year with our own money this year when we should instead be saving for disasters we might face next year. I don’t mind paying for two kittens if we all share and share equally. But that’s not how this current system works. I guess you don’t want to cover your internet, water or electricity bill. This is on me, as it should be. It is unfortunate that our insurance industry is not like that. It’s time to try something different, and the Legislature is in session. The ball is in their court. who wants to play?