Florida’s Reedy Creek Improvement District: Could private government help fix Florida’s property insurance system?
Walt Disney World sits on of 25,000 acres in Central Florida governed and managed by an essentially “private” government—the Reedy Creek Improvement District (RCID). RCID levies taxes on its residents, devises and enforces building codes, handles waste management and fire protection, issues bonds to finance infrastructure projects, and performs many other functions ordinarily performed by local governments.
RCID and Disney have been remarkably successful at avoiding insured losses. Even during the state’s notorious and financially ruinous 2004 hurricane season, Disney suffered only $50,000 worth of damage. RCID’s administrator and others chalk at least part of this resilience to RCID being Disney’s private government.
Florida’s property insurance problems are many, deep, and well documented. Its market is filled mostly by small insurers based in the state, the majority of which have lost money in recent years after considerable storm payouts. Rates are kept artificially low, which has driven large insurers out of state. Another important factor that has driven many large insurers out of the market is the presence of Citizens Property Insurance Corporation—known as Citizens—a government agency that competes directly with private insurers for many policies. It has sold more than 1 million policies, is the state’s largest insurer overall, its rates are kept artificially low, and any Florida resident who receives a rate quote 15 percent higher than the Citizens rate is eligible to purchase a Citizens policy.
In addition to undercutting private sector competitors by offering below-market rates, this state insurer is an outright liability for the state’s resiliency against the major tropical storms to which it is exposed. It effectively subsidizes development in fragile wetlands and other natural storm buffers. In the event of a major storm—a possibility that is always imminent—Citizens could end up owing as much as $21 billion in claims, of which it will likely have less than $13 billion to pay. Florida’s Hurricane Catastrophe Fund, which is also staterun, is the largest reinsurer in Florida. A recent conservative estimate places its shortfall at just over $7 billion, though most would put the shortfall closer to $20 billion.
A major storm could throw Florida into a state of financial crisis. And proposals to correct this crisis are yet unavailing. While small in scale in relation to the state’s insurance and storm mitigation needs, could Disney’s model of private government provide some ideas on at least one way of reducing Florida’s massive insurance exposure by creating hardier properties?As Florida’s legislators look for politically feasible ways to save wetlands, save money, and keep Florida’s Citizens Property Insurance Corporation and Catastrophe Fund solvent, Disney’s Reedy Creek Improvement District offers a compelling—though not uncontroversial—example of how private government can help reduce taxpayers’ burden in paying for storm mitigation, while giving flexibility and control to private landowners.
In trying to find a mix of politically feasible solutions to Citizens’ excessive liability and lack of competition in Florida’s property insurance market, the legislature should consider the case of RCID—specifically whether encouraging the creation of other private government bodies in Florida might have similar success in building resistance to storms. Such increased resilience would lessen Floridians’ exposure to the physical damage and financial losses that storms cause.