How Florida Saved Taxpayers

Reforms helped a state-backed insurer weather the storm.

 
 

Barry Gilway, CEO of Citizens Property Insurance Corp., in Miami, Fl., Sept. 6.
Barry Gilway, CEO of Citizens Property Insurance Corp., in Miami, Fl., Sept. 6. PHOTO: LYNNE SLADKY/ASSOCIATED PRESS
 

These columns are often critical of government, especially when public officials put taxpayers on the hook for future risks. Think Fannie Mae, or federal flood insurance. So it’s worth pointing out when a government acts to reduce taxpayer liabilities ahead of a fiscal storm, as Florida did before Hurricane Irma.

The example is taxpayer-backed Citizens Property Insurance Corp., the state-owned insurer that not long ago was a fiscal disaster awaiting the next hurricane. But CEO Barry Gilway told us Tuesday that he’s “absolutely confident” that Citizens, which boasts a $7.4 billion fiscal surplus, “can cover all the claims from Irma.” The news should come as a relief to policy holders and Floridians who hold other forms of insurance, all of whom Citizens can tax, under state law, to fill fiscal holes.

The Tallahassee-based insurer’s good fortune is due to a mix of luck, in the form of 12-year lull in major hurricanes, and some important reforms that weren’t always popular when they were made. Since taking the CEO job in June 2012, Mr. Gilway, backed by Chairman Christopher Gardner and Governor Rick Scott, bought reinsurance, built surpluses and aggressively shrank its footprint in the state. 

In 2011 Citizens insured 1.5 million policyholders; today it insures 452,000. Private insurers have taken up the slack. This had the benefit of spreading damage risk from hurricanes across the globe via reinsurance rather than keeping it all in Florida.

On current estimates, Citizens could cover a 1-in-100-year storm for $6.6 billion, at no additional cost to policy holders. If the same storm had hit the Sunshine State in 2011, it would have cost the insurer $24.5 billion and required an $11.6 billion assessment to cover the red ink.

That’s what happened in 2004 and 2005, the last time big hurricanes hit Florida. Citizens had to levy more than $2 billion in taxes on policy holders and other Floridians to cover its fiscal shortfall, and Tallahassee also coughed up a $715 million bailout. As recently as 2005, Citizens still shouldered a $1.8 billion deficit, a far cry from its surplus today.

Alas, there are no permanent victories when it comes to government-owned enterprises, including in Florida, which has a well-earned reputation as a playground for the plaintiff bar. Citizens and private insurers have recently been flooded with “assignment of benefit” (AOB) lawsuits, in which lawyers convince homeowners to sign away their insurance rights. The lawyers then sue the insurers, who find it cheaper to settle than to take the cases to court, thanks to state courts’ liberal interpretation of an obscure statute.

Citizens posted its first consolidated net loss since 2005 in March, at $27.1 million, due to the cost of AOB litigation. Southeastern Florida residents now pay some of the highest insurance premiums in the nation, and costs are rising by double digits. As Mr. Gilway noted last month, litigation costs have forced the insurer “to seek rate increases again this year for more than half of our 452,000 policy holders.”

Reform-minded state legislators such as Senator Dorothy Hukill and Representative James Grant introduced AOB reform bills this year, but they were blocked by state Senator Anitere Flores, a Miami Republican who controls a key committee. Ms. Flores has doubled down on her pro-trial bar stance, claiming “Citizens has unfairly raised insurance rates on policyholders since 2010, forcing my South Florida constituents to pay $700 million more in premiums than in actual claims since 2004.”

The real problem is Republicans like Ms. Flores and her protector, Senate President Joe Negron, who will cause Florida homeowners to pay more for Citizens insurance in the coming years. The stars here are Messrs. Gilway and Gardner, who reduced taxpayer liabilities ahead of the storm despite political cheap shots. Now Florida needs to move on tort reform before the next big one hits.

Appeared in the September 13, 2017, print edition.

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