Charlie Crist, taxpayers and the next hurricane

From the Wall Street Journal

Who needs Mother Nature to cause a catastrophe? Florida's politicians are busy creating an unnatural disaster in their state insurance market that will blow away taxpayers when the next big hurricane hits. And we mean taxpayers across America.

Last month State Farm pulled the plug on its 1.2 million homeowner policies in Florida, citing the state's punishing price controls. The state's largest insurer joins a raft of competitors that have already reduced or dumped their property and casualty business in the Sunshine State, including Prudential, Allstate, Nationwide and USAA. This is the inevitable result of Governor Charlie Crist's drive to control property-insurance premiums. The Republican also lobbied his GOP legislature to make the state government a giant competitor in the market, undercutting private insurers.

State Farm's local subsidiary recently requested an increase of 47%, but state regulators refused. State Farm says that since 2000 it has paid $1.21 in claims and expenses for every $1 of premium income received. Since January 2008 alone, the company's surplus has fallen to $621 million from $820 million. Every month in Florida, State Farm loses $20 million. So it finally said, No mas.

Meanwhile, Floridians have been signing up with Citizens Property Insurance Corp., the state-run insurer that Mr. Crist unleashed in 2007. Because it has an implicit taxpayer guarantee, and because its actuarial assumptions are, well, loose, Citizens can offer lower premiums than private competitors can. Citizens has become the largest insurer in the state, with 1.1 million policies.

Mr. Crist has thus guaranteed that Floridians, rather than the global insurance industry, will be on the hook for property damage when the next Katrina hits. Citizens is facing more than $400 billion in potential exposure, yet Citizens Chief Financial Officer Sharon Binnun was recently cited in the South Florida Sun Sentinel as saying it had only $3.4 billion in net assets. Anxious to keep voters happy, legislators have frozen Citizens premiums the past three years.

Some 25% of the coastal property in U.S. hurricane zones is located in Florida, and another storm is inevitable. To pay for those claims when they come, Mr. Crist will either have to raise taxes on Floridians, or beg Congress for a rescue. Mr. Crist tried the latter in 2007 when he pushed federal legislation to distribute below-market loans to state insurance programs and create a federal reinsurance body to backstop undercapitalized states.

Even the Governor may be catching onto his folly. While dismissing State Farm's exit -- "Floridians will be much better off without them" -- he is pushing for a law barring the company from dropping more than 2% of its customers in a single year. So, having publicly brutalized State Farm, undercut its business and set its prices, Mr. Crist now wants to require it to keep losing money.

Mr. Crist's behavior stands in contrast to that of Louisiana, of all places. Baton Rouge also established a Citizens insurer after Katrina but only as a "last resort." Louisiana has a thriving private insurance market, in part because regulators have let companies adjust their rates. By law, Louisiana Citizens cannot offer competitive prices, save in a few high-risk coastal areas. From a peak of about 170,000 policies in 2007, it now holds about 130,000 (about what it had before Katrina) and is aiming to get below 100,000.

It's scary to imagine the bill taxpayers will get when the next big hurricane hits Florida. It's even scarier to think Mr. Crist is being touted as a potential GOP candidate for the White House.