TALLAHASSEE — Florida’s property insurance market was in freefall in 2006 after a series of hurricanes. Premiums were rising. Insurers were going out of business or threatening to leave the state.
In response, a group of St. Petersburg businessmen and lawyers came up with a sweeping solution: Have the state offer hurricane insurance. Let private insurers offer everything else.
Armed with data and political connections, group members flew private planes to Tallahassee on repeated trips to meet with then-Gov. Charlie Crist, lawmakers and the state’s insurance regulator.
Instead of being welcomed, they found their idea was “a political hot potato,” one member said.
Although the dozens of small insurance companies that dominated Florida’s market were struggling to pay out storm claims, the group’s plan would have also stripped the companies of the enormous profits they earn in storm-free years. Those companies are major political donors to Florida’s elected officials.
Roughly 15 years later, Floridians are again faced with rapidly rising premiums and a slew of insurance companies going insolvent, this time after hurricanes Ian, Michael and Irma. And the idea those St. Petersburg residents raised all those years ago is being taken up by some new faces.
An unstable market
In storm-free years, the small Florida insurance companies that make up the bulk of the state’s industry can make considerable profits for insuring relatively few homes, thanks to charging the high premiums required for wind insurance.
In the 2010s, CEOs for Florida’s domestic insurers were some of the highest-paid in the nation.
In 2015, for example, the CEO of Tampa-based Heritage Insurance Holdings made $27.3 million, more than twice what the CEO of State Farm made, despite overseeing 0.3% of the number of policies and accounts.
But when storms hit, the companies may not have the capability to pay out claims, leading to a wave of insolvencies.
When those companies fail, Floridians are often on the hook. To pay the companies’ outstanding claims, the state can levy up to a 4% surcharge on all homeowners’ insurance policies.
That’s what happened after Florida was walloped by a series of hurricanes in 2004 and 2005.
An idea to benefit Floridians
Former state Rep. Don Crane, who was a legislator from 1970 to 1974, knew the levers of power in the state. He used to own an insurance agency, helping homeowners find insurance.
After being dropped by his own insurance carrier in 2006, he decided it was time to do something.
One of his first calls was to Bill Ballard, a recently retired corporate attorney from St. Petersburg.
The idea they settled on was this: Combine Citizens and the Florida Hurricane Catastrophe Fund, creating a new entity that offered only hurricane insurance. Private carriers would handle the more predictable forms of homeowners insurance, such as fire and theft.
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Instead of Floridians’ windstorm premiums going to profits, they would be pooled into a common fund.
“Bill and I kind of figured that if you added up all the years Floridians were paying for hurricane insurance, it was a ton of money,” Crane, 89, said recently.
Barring any major storms, the fund was projected to be self-sustaining in its 10th year, with a surplus of $82 billion. (Florida would indeed go 10 years without a storm, a streak that ended in 2017.)
In short, the plan would give Florida’s policyholders something they haven’t experienced since 1992′s Hurricane Andrew upended the market: “near-absolute rate stability,” their report stated.
Crane’s plan was realistic on paper, experts found.
John Rollins, Citizens’ former chief risk officer, reviewed the group’s paper and wrote that it was a “surprisingly persuasive argument.” Florida TaxWatch vetted it in 2011 and found the idea “a viable one,” praising the fact that it was the only solution with mathematical modeling backing it up.
The former head of Citizens, Barry Gilway, said he believes that competition among private insurers is the best way to lower rates. But Crane’s idea is “not unreasonable,” he said recently.
But the plan was not without caveats.
For one, it projected premiums going up for the short term, although rates would eventually go down.
Some were concerned about the state shouldering such high risk, feeling it should be spread out among private companies.
And it would have required an agreement with the federal government to loan the fund money if it couldn’t pay out in a catastrophic storm — the type of storm the state has not yet seen.
Resistance from insurers
Crane and his volunteers knew the idea violated the free-market beliefs of the Republican-controlled Legislature, even though Florida’s government is heavily invested in insurance through Citizens and the Hurricane Catastrophe Fund. Requiring a partnership with the federal government, which many GOP lawmakers consider anathema, didn’t help.
A Crist spokesperson said in 2009 that Crist was against it because he “believes the insurance industry, rather than the government, should assume the financial risk for hurricanes.”
Ballard said their proposal was also “toxic” for a different reason.
Large insurers, including State Farm and Allstate, privately supported the idea, Ballard said. The companies stopped just short of publicly endorsing it, although State Farm agents came out in support.
But domestic insurers were adamantly against it.
If the state offered only hurricane insurance, domestic insurers stood to make much less money, Ballard realized. And they were a powerful constituency in Tallahassee. (The same is still true now; for instance, Tampa-based Heritage Insurance Holdings and its affiliated companies have donated more than $2 million to politicians since 2010, and was one of the sponsors of DeSantis’ inauguration this year.)
“To commit to essentially stripping out this much from the premium dollar and putting it into a state-run fund crossed ideological lines and financial interest lines, everywhere,” Ballard said. “Everywhere you put your foot down, you were stepping on one.”
Even though Crane and his volunteers had the clout to get meetings with then-Gov. Crist, then-Chief Financial Officer Alex Sink and top legislative leaders, Ballard said no one wanted to touch the plan.
“It was that much of a political hot potato,” Ballard said. “In my opinion, the money from the insurance industry was big money.”
In 2011, after five years of work and countless trips to Tallahassee, Crane and his volunteers gave up. Their proposal never got a hearing in any legislative committee.
Still, the idea has not gone away.
A December op-ed in the Tampa Bay Times proposed creating a mutual windstorm association to offer hurricane insurance, similar to Crane’s idea.
The author was Thomas Cook, a former Florida insurance regulator and analyst for the National Association of Insurance Commissioners. Over the years, he and his colleagues would talk about a statewide hurricane insurance pool after noticing the boom-and-bust cycles in Florida.
“In the quiet years, we would see on (insurers’) financial statements what was happening, and then when a storm hits, some go insolvent,” Cook said recently. “It’s not a good business plan. It’s just a limitation with the private insurance model.”
Texas, he wrote, has a similar model. The Texas Windstorm Insurance Association was created in 1971 to offer wind and hail coverage for homeowners in the state’s coastal counties who can’t find private coverage. Net gains each year are rolled into a trust fund for future losses.
Cook said that he wasn’t aware that Crane and others had proposed a similar idea years ago.
“When you have a group of rational people looking at the same problem, it’s not unusual for them to coalesce around similar solutions,” Cook said.
State lawmakers’ solution to the current crisis has been to give insurers what they want: limiting lawsuits, which is what they blame for recent company insolvencies and for charging record premiums.
But the dynamics of Tallahassee haven’t changed since 15 years ago.
When you go to Tallahassee with an idea, who gets affected by that idea can decide its fate, Bud Risser, a local oil distributor and one of the members of the St. Petersburg group, said recently.
“Sometimes, that’s more powerful than the idea itself.”