Milton Friedman wrote, “If you put the federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand.” This holds true if you put the federal government in charge of healthcare and a state government in charge of property insurance. In five years we have seen a growing shortage of property insurers in Florida. Forecasts indicate the same will happen with health insurers.
Fewer private insurers means higher costs for all policyholders.
The September 2012 Florida’s Citizens Property Insurance Corporation (Citizens) rate hearing reported, “Citizens lost nearly $1 billion on sinkhole losses occurring in 2007-2011 with a loss ratio for sinkhole business for 2011 of 877%. This created net loss for the PLA for year ended 12/31/11 and resulted in less financial resources to pay for future hurricanes.” The result for 2014 will be that Citizens will levy an emergency assessment (tax) on all Florida property owners to cover its losses.
Since the report Citizens continues to drop policyholders and issue bonds to cover losses.
Business Wire in May 2013 reported, “Reinsurance coverage from Florida Hurricane Catastrophe Fund (rated ‘AA’ by Fitch) accounts for a significant share of Citizens’ pre-event resources for the personal and commercial line accounts, and thus any potential FHCF shortfall could affect Citizens’ own liquidity. The Florida insurance market is stabilizing but remains vulnerable. The larger, financially stronger insurers have either stopped writing new policies or are completely exiting the market, shifting the risk to the smaller, thinly capitalized, Florida-only insurers that are mostly unrated or low rated.”
Citizens recently issued bonds rated A+ by Fitch. Business Wire notes, “Ultimate security for the bonds is derived from Citizen’s ability to levy ’emergency assessments’ on nearly every insurance policy holder in the state for an unlimited duration and in an unlimited cumulative amount to pay debt service on the bonds.” Soon Floridians will run out of money (sand) to pay off these bonds should a major hurricane hit.
In the document titled, “Individual Monthly Health Insurance Premiums Before and After PPACA,” the Office utilized two separate methods for calculating potential premium increases. The first method utilized a hypothetical mid-level “silver plan” created by the Office using adjustments to a standard plan in Florida, and compared this pre-PPACA silver plan to actual silver plans filed with the Office; this resulted in an average 35.2 percent increase with a range of 7.6 percent to 58.8 percent.
A second method compared company projected premiums to a marketplace average for policies without the 2014 PPACA provisions; this resulted in an average 39.3 percent increase with a range of 14.3 percent to 55.3 percent. It is important to note that neither of these methods incorporated any potential federal subsidies or credits that might be available to individuals.
The US Department of Labor, Bureau of Labor Statistics reports from January to June 2013 the labor force in Florida declined, while the number of layoff events and the size of government increased.
While under Governor Rick Scott Florida’s unemployment rate is declining, there were 665,100 still unemployed in June. In January 2008 the unemployment rate stood at 4.8%, it peaked in January 2010 at 11.4% and now stands at 7.1%.
A recent AP survey documented a significant decline in economic security. If the costs of property and health insurance rise as predicted then employers will do what they must to remain profitable – cut staff and/or cut hours. Those actions will further undermine Florida’s economic security.
Gird your loins Florida for a double insurance premium whammy in 2014.