Hurricanes Happen

Insurance price controls

Eight hurricanes hit Florida in 2004 and 2005, causing some $36 billion in property damage. With forecasters predicting more of the same during the next decade, homeowner's insurance rates rose sharply, which some might interpret as a signal that Floridians are building too many vulnerable homes in high-risk areas.

That was not the conclusion drawn by the state legislature, which in January responded by ordering insurance companies to charge less. The vote against high insurance premiums (and, presumably, against the hurricanes that cause them) was 40 to 0 in the Senate and 116 to 2 in the House of Representatives.

The law, championed by incoming Republican Gov. Charlie Crist, aims to make rate cuts possible partly by offering insurers billions of dollars in additional backup coverage. The state will provide the reinsurance at below-market rates through the Hurricane Catastrophe Fund and force insurers to pass the savings on to policyholders. Since money for the fund comes from surcharges on homeowner's coverage and other kinds of insurance, it will have to be replenished with heavy assessments on policyholders if, as seems likely, a series of big storms exhausts it.

The law also authorizes the state-run Citizens Property Insurance Corp., which had been limited to wind damage insurance, to offer other kinds of coverage and charge lower rates. If the company, which
ran deficits in 2004 and 2005, cannot cover the losses from a big storm, either taxpayers or policyholders will have to make up the difference.