Homeowners can get a Citizens policy at an implicitly subsidized rate as long as private premiums are at least 20% more expensive, which is increasingly the case. Once they get there, homeowners tend to stick with Citizens, pushing the Citizens portfolio above a million homes this year, including some of the riskiest properties that simply can’t get insured anywhere else. That may be putting an artificial cap on market prices, too, preventing insurers from charging what they deem to be a reasonable price for the risk. Under the new legislation, homeowners will be forced to leave Citizens once they can again find private-sector policies within 20% of the price of those issued by Citizens.
These reforms were largely necessary to address a crisis unfolding in real time, but they have come far too late and address only part of the problem. This back-against-the-wall situation arrived after years of both parties kicking the can down the road on an issue that’s only going to get more challenging as sea levels rise. On balance, the measures could control the litigation costs and allow companies to charge what they view as a legitimate premium. Ultimately, companies will always be happy to write new business if they think they can estimate their exposure and charge a reasonable price for their risk. The reforms to the litigation outlook and the insurer of last resort will help them do just that.
But the underlying risks themselves—intensifying hurricanes, rising seas and climate change more broadly—aren’t going away, and Florida remains woefully unprepared to deal with the costs. Development continues apace in some of the most obviously perilous coastal and barrier island communities. Insurers will surely be pleased that they can better balance risk and return going forward, and homeowners should be pleased that they won’t completely lose access to insurance. But how long they’ll be able to afford the cost is another question, and the Florida legislature has failed to address that fundamental problem of having costly real estate facing a looming storm.
This article was provided by Bloomberg News.