I couldn’t agree more with Florida Insurance Commissioner Kevin McCarty’s latest letter to the media asserting that facts – not mischaracterizations – should drive the public policy debate on Florida’s deteriorating property insurance market.
The irony, Commissioner McCarty, is that your “facts” are far from complete and therefore provide poor guidance in this debate of profound importance to all Floridians.
Let’s rewind this debate back to May 14, 2009, when you wrote to Gov. Charlie Crist urging him to veto House Bill 1171, which would have allowed homeowners to decide for themselves whether they preferred to buy a policy at market rates from a large, well-known and well-capitalized private insurer. The bill expanded the choices available to homeowners, who still had the option of keeping existing policies if they so chose.
In your letter, you told the Governor: “Florida has added 40 new property insurance writers with more than $4 billion in capital since 2006 … HB 1171 will disrupt the effort to build an increasingly competitive insurance marketplace and treat certain insurers differently than emerging Florida domestic companies. This has the potential to harm consumers and investors who have worked in good faith to create a competitive marketplace that has benefited all Floridians.”
But your “facts” don’t tell the whole story, do they Commissioner McCarty? For instance, isn’t it true that you later were forced to admit to the governor and cabinet that most of the $4 billion in new capital you trumpeted is attributable to unregulated surplus lines insurers that cover commercial structures like apartment buildings – not average homeowners? And isn’t it true that many of the “emerging” domestic companies you have licensed and bragged about are now financially struggling or are flat-out failing, putting tens of thousands of Florida homeowners at risk?
To help jog your memory, here’s a look at how some of Florida’s leading newspaper editorial writers have viewed your version of the “facts:”
The Panama City News Herald, in an editorial that same day headlined “Numbers don’t add up,” added this: “McCarty’s latest report proves that the private homeowners’ insurance market isn’t growing anywhere near as much as the governor and commissioner have claimed. At best, they are guilty of a gross exaggeration and obfuscation; at worst, they outright lied.”
The Tampa Tribune, in another editorial dated August 28, 2009 and titled “Insurance chief’s numbers amount to fuzzy math” had this take: “Neither McCarty’s letter making his recommendation to the governor nor Crist’s explanation of his veto mentions the dependency on high-risk coverage companies that are not admitted carriers in Florida. McCarty needs to explain how Florida has a rejuvenated market when the smallest amount of capital is coming from companies fully regulated by the state – the situation the vetoed bill was trying to rectify.”
And the Tallahassee Democrat, in a September 6, 2009 editorial “Hurricane reason,” offered this: “The hapless Department of Insurance continues to promote feel-good figures that don’t actually tell the truth: It says, for instance, that some $4.2 billion in fresh capital now stands behind new property insurance companies willing to do business here. What Florida Insurance Commissioner Kevin McCarty only barely acknowledges, though, is that these largely unregulated ‘surplus lines’ specialize in high-risk commercial properties, waterfront condos and other hard-to-insure properties – not mom-and-pop homeowners in the three-bedroom bungalow.”
More recently, Commissioner McCarty, you announced on April 7 that Northern Capital Insurance Co. is the latest Florida start-up insurer to go insolvent on your watch, leaving 74,000 homeowners scrambling to find new coverage as hurricane season looms. Two days later, you announced yet another start-up insurer, Olympus Insurance Co., wouldn’t have enough cash to pay claims if one major hurricane hit, and ordered the company to beef up its capital by May 7 or face suspension.
Northern Capital joined four other start-up insurers – including Magnolia Insurance Co., Coral Insurance Co., American Keystone Insurance Co., and First Commercial Insurance Co. – that failed in the past year. These were all companies you touted to the governor and cabinet, and they went down despite five hurricane-free years in Florida. Additionally, Edison Insurance Group was acquired by Florida Peninsula when it ran into financial trouble.
Commissioner McCarty, in your latest letter to the media, you choose to blame “alarmists who mischaracterize the issues, shock the public, and propose vague and untenable solutions” for harming the current debate on property insurance. Given your stance, it’s only fitting that you should then provide answers to the following questions to Florida’s media and consumers:
Is it alarmist for Floridians to worry that thinly-capitalized Florida insurers you licensed and approved are going insolvent, while others may not have enough cash to pay hurricane claims?
Are fiscally prudent Floridians guilty of trying to “shock” the public if they warn – factually – that state-run Citizens and the Cat Fund are in real danger of running out of money if a big hurricane hits Florida this summer?
Are proposals to help jump-start private market competition, and reduce the state’s billions of dollars of unfunded risk in the property insurance market, really “vague and untenable solutions?”
Frankly Commissioner McCarty, you’re the one who owes Florida’s elected officials, the media and the public some straight talk. And next time you tell your story, make sure that all of your “facts” are rooted in the truth.
Brough is the chief economist and vice president for research at FreedomWorks, a group that promotes lower taxes, less government and more freedom.