If a major hurricane hit Florida, state-run Citizens insurance company would not have enough money to pay out all its claims, according to a year-long study funded by taxpayers and overseen by non-partisan Florida TaxWatch.
So the State of Florida would have to make up some of the difference, which would devastate the budget and put 70,000 people out of jobs, the study, released Monday, said.
"The one thing that's worse than not being insured,” warned a soft-spoken Dave Letson, author of the study and a University of Miami expert on economic impacts of severe weather, “is to pay premiums to an insurer who then is not around when we need it. "
Citizens Property Insurance Corporation and the Florida Hurricane Catastrophe Fund were created a few years back to become the insurer of last resort, for homeowners who couldn't get a commercial insurer. And they've done that. The problem, suggests Letson, is “there is always a trade off between making it inexpensive and making it solvent. And so the question is 'have we crossed that line? Do we do so at our peril?’”
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So you can thank Letson if your Citizens rates go up in coming years. And, perhaps, you should be grateful. After all, his study found there’s about $8 billion in cash or liquid assets available to Citizens and the Fund, and another $8 billion could be brought in by selling expensive bonds – if anyone would even be willing to buy bonds from what would be the largest sale of state-backed bonds in history. But Letson’s study suggests a really bad hurricane could cause $23 billion in damage just to Citizens customers. That’s a shortfall of at least $7 billion.
"Our windstorm insurance is broken basically,” says Letson. “That it's dangerously underfunded. That if we tell ourselves the seasons of '04 and '05 cannot happen again, then we’re taking an enormous risk."
Partly as a result of this study, legislators are already proposing rates be raised and other changes made.
"Low cost insurance may be the most expensive type you can buy, particularly if that claim cannot be paid," Rep. Bill Proctor, (R) St. Augustine, said at a news conference in Tallahassee today.
So what insurance does Letson have to keep his home and family insured? You guessed it, Citizens. "Yeah, frankly, I feel like I am underpaying here on Key Biscayne," he said.
Citizens rates are already going up. But if state lawmakers approve, Citizens will raise rates even more, and stop taking nearly anyone - instead focusing on only those homeowners who cannot get insurance anywhere else.
