This editorial appeared in The Miami Herald.
Ever since Hurricane Andrew battered South Florida, property-insurance companies have demanded more from customers in Florida while giving less in return. Now that state regulators have denied State Farm Insurance an untimely rate request for a whopping 47 percent hike, the company has decided to get out of the property-insurance business in Florida, leaving customers with 1.2 million policies in the lurch.
This may be a good business decision for State Farm, but it isn't for the people of Florida. The state has tried to accommodate property-insurance companies, at a cost to consumers in the form of higher premiums, personal exposure and more out-of-pocket expenditures to protect homes from storms. Among the actions:• Reducing the risk to insurers by creating a state-backed company for the most vulnerable properties.
• Adopting new pricing mechanisms that produce higher premiums.
• Allowing for weaker coverage (higher deductibles) to limit payouts.
• Providing incentives for consumers to install protective upgrades, thus limiting damage and payouts.
• Allowing national companies like State Farm to create Florida subsidiaries that protect the parent company from risk.
New companies have been lured into the market by these actions, but for some these adjustments have not been enough.
It is not hard to see why insurers don't like windstorm policies. The risk is unpredictable, and payouts can be expensive. The only way to provide coverage that allows a profit, they argue, is to limit exposure, which Florida has done (see above), and collect high premiums. But Floridians are just about tapped out – and homeowners are wondering if the actual goal isn't zero risk and maximum profits.
To read the complete editorial, visit The Miami Herald.