Crist's insurance follies ruinous

There are times when you do not want to be right, particularly when pointing out the dangerous folly of a public policy that could do real damage.

This is not one of those times.

It has been a little lonely at times for the Review, taking on Gov. Charlie Crist and his happy populist dance through troubled times, a little dance that is not based in any philosophy deeper than Pollyanna, make-the-folks-happy wishful thinking. One day he sounds conservative. Another day he acts liberal. Always he is wanting to please people rather than lead on principle.

That is crummy leadership, and, thankfully, people are beginning to notice. His once bright star is starting its descent, and it is probably just the beginning. It may be that the state's insurance challenges will be the anchor that drags him down. If so, it would be his own doing.

Florida has long had a skewed insurance system with help from the federal government's flood insurance program. The state's most expensive properties along the coastlines are subsidized by the properties inland. The industry is heavily regulated by Tallahassee, which some folks are quite happy about. But it is a bad system.

The regulation means that bean-counting bureaucrats and wet-finger politicians approve or disapprove rates, when actuarial bean-counters and company executives ought to be doing it in the best interests of their companies — companies that actually can pay in a catastrophe. If the state deregulated, it would allow a lot of competition for rates and policies, and people could choose the big, established State Farm-type of companies and pay more, or the smaller startup firms and pay less.

But in truth, most people would probably pay more. Some on the coasts would pay a lot more. And that is exactly what needs to happen to make the state insurance system solvent. We probably have all been paying too little for our homeowners insurance because politicians kept the rates artificially low to please voters. It only worked as long as we had a quiet hurricane period. And then voters, ever fickle, would turn on the politicians. You see the problem with this.

Puny reserves
State Farm sees the problem, also.

The state's largest private insurer was looking at enormous financial liabilities in the event of a major storm and wanted to ratchet up rates. But Gov. Populist, holding ill-fated news conferences in photo-op locations, opposed the rate hikes again and again.

He even pushed a plan to drive down all insurance rates 35% — a monumentally stupid idea ungrounded in anything but trying to make voters happy. It was doomed from the moment he announced it. You can't wave a magic wand and by fiat make everything less expensive.

Here is a simple comparison between State Farm and Citizens Property Insurance Corp.

Citizens holds reserves of $3.2 billion — that is the excess of premiums over payouts because we have not had bad storms since the state-run insurer went big. But Jim Malone, chairman of Citizens, says the reserves should be $11 billion if the state is to be able to handle a storm hitting a major Florida population center.

In a story by Review Lee/Collier Editor Jean Gruss in this issue, Malone says premiums need to be raised by 25% for Citizens customers, and even then it will take many years without a major storm to reach the reserves necessary.

Now take State Farm. The insurer has $344 billion of exposure in the state — just a little less than Citizens' — but only $621 million in reserves. It asked for a 47% rate increase to begin building up its reserves to be able to pay out in a catastrophic storm. As badly exposed as Citizens is, the state insurer has five times the reserves that State Farm has.

Instead, Gov. Populist wanted to lower State Farm rates to please people.

Time to go
Faced with either politically-jacked intransigence or frightening ignorance, State Farm decided the risk to the company's financial well-being was too great and chose to pull out of Florida.

Then, in his own Neville Chamberlain moment, a petulant Crist got in front of the cameras and said “good riddance.” This will come back to haunt him.

Unfortunately, until recently his bad ideas have found plenty of similarly wet fingers in the Legislature, which has tried to craft plans to force rates down. Let's be frank, Republicans own this insurance debacle, and they should have known better. They can draw little solace from the reality that Democrats would have been worse. Politicians have practically destroyed a functioning market.

The benefits of deregulating are enormous, not the least of which include getting the state-run Citizens Property Insurance, and thus taxpayers, off the hook for more than $400 billion worth of exposure. Such risk concentrated on taxpayers will only get worse without insurance giant State Farm in the mix.

But wait. There was the magic dictator wand. The insurance commissioner, with the backing of Crist, drew it out and pronounced that State Farm was not free to just leave. It must make sure it finds a home for its 1.2 million policyholders that does not include Citizens — in other words, act more responsibly than the state. So State Farm would have to spend a small fortune and a lot of time to extricate itself from the Crist-led Florida insurance morass, risking insolvency if it stayed or if it left. The company is appealing the deplorable — does “tyrannical” overstate it? — orders.

And now we see the rest of Crist's plan for protecting us from market insurance rates is falling apart.

Legislature finds reality
The Legislature is in the midst of backing away completely from laws it passed just two years ago to reduce insurance rates.

It is only in recent days that the Legislature seems to be grasping the magnitude of this mistake. In a sharp rebuff to Gov. Populist, a House budget committee is considering a plan that would allow State Farm and other large insurers to increase their rates and have less regulation. Hallelujah! Finally a sane response to the reality of what Crist has tried to do. State Farm likes the proposal but won't say if it is enough to keep the company in Florida.

And Crist's health insurance plan, “Cover Florida,” was supposed to be the “solution” for the state's four million uninsured residents — many of whom are young and healthy and choose to be uninsured.

But after more photo-ops around the state, fewer than 2,000 people have signed up. Supposedly no tax dollars are involved, but it should be obvious by now that government cannot do things better than companies who know their industry intimately. Anyone care to lay odds on how the feds running General Motors turns out?

All of this is just another example of how lazy, groundless philosophies can ruin freedoms and prosperity. Crist's Tallahassee-knows-best, central-government approach to the insurance industry is a clear failure.

The Legislature seems to be acknowledging as much as it bails on the lousy, Nixonian price-control schemes. Unfortunately, it is clear that Crist does not get it.

He probably won't. But that won't matter. Gov. Populist, as he always has, will move on to the next opportunity — a run for the U.S. Senate. To which, we'd say, as he did: “Good riddance.”

Rod Thomson is executive editor of the Gulf Coast Business Review and can be reached at [email protected].