In October 1989 I remember being in San Francisco at a business meeting when the ground shook badly and the building in which I was meeting lost windows and walls. To be more specific, I had experienced the magnitude 7.1 earthquake which the country saw live during a televised World Series game. What was more interesting is what I observed the next day.
I remember walking down to the Marina District where multi-million dollar homes had sunk into the dirt used to fill in the bay to create the area decades ago. And I remember property owners complaining to the media that the government would have to help them pay for those damages which their insurance would not cover.
Lastly, I remember hearing a number of residents debating why the government should get involved since the homeowners chose to live in a known earthquake zone. Sound familiar? We are undergoing the same property insurance debate here in Florida where we have all chosen to live in a known hurricane zone.
My beliefs and my wallet are causing conflicting priorities in my thoughts about how to resolve our property insurance crisis in Florida and what role government should be playing. My beliefs tell me the insurance industry should be able to charge whatever they need to earn a reasonable profit. My wallet tells me that a proposed 70% increase in property insurance for many South Floridians is unreasonable and the government needs to provide a fair solution to resolve this marketplace mess.
After Hurricane Andrew many major property insurance companies formed self-funding subsidiaries to solely serve Florida. In doing so, they minimized the benefit to Floridians of spreading windstorm damage risk to property owners outside of the state. They also started to separate “windstorm” protection from other property insurance coverage so they could further ensure that their biggest risk had its own actuarial basis.
Other insurance companies simply decided to stop writing any policies in our state. And thus came the need for the state to help form a last resort insurance carrier which initially had even fewer policy holders among whom they could spread the risk.
The result in each of these cases has been enormous increases in individual property insurance rates especially for windstorm protection. The result is that many homeowners and businesses are simply leaving the state for less expensive areas. When you add the high cost of housing, can you doubt why many have moved?
Since the insurance carriers have chosen to stop spreading much of the risk of providing property insurance coverage in Florida to their other customers throughout the country and since our state guided last resort carrier is buckling under the weight of so many new customers, perhaps it is time for the federal government to step in.
In 1968, the federal government did just that to help property owners obtain affordable protection against flood damages. Today, the National Flood Insurance Program assists property owners in 20,000 communities around the country. Most South Floridians are benefiting from this program. Perhaps it is now time for the federal government to implement a National Windstorm Insurance Program to help property owners to also obtain affordable windstorm coverage throughout communities in hurricane and tornado zones as long as stringent building codes are required for new and existing homes.
Such a program was proposed by the United States Congress several times in the last decade. Perhaps after last year’s devastation from Katrina and Wilma, there will be enough votes to finally pass it. While my beliefs are against another potentially large federal government program, my wallet is rooting for such a victory!
