Workable Solutions for Florida’s Challenging Insurance Problems
The ways that Floridians purchase coverage to protect their property and insure their vehicles has, increasingly, placed a significant drag on the state’s economy. Both the state’s automobile insurance system — particularly the “no-fault” personal injury protection (PIP) portions of it —and the state’s homeowners insurance system have very serious flaws that threaten the state’s business climate and, indeed, the financial well-being of all its citizens. Some of Florida’s problems, particularly those that relate to property insurance, stem from its location. But nearly as many result from deliberate, interconnected policies pursued by the Legislature, previous governors, or the Office of Insurance Regulation. As it convenes for its 2012 session, the Florida Legislature should consider major reforms in its homeowners and vehicle insurance systems. Florida, quite simply, faces a dual crisis in its insurance markets and needs to make serious changes to overcome it.
All of this matters to state government because property and casualty (P&C) insurance is, by a large margin, the largest area of economic activity regulated almost entirely at the state level. Consumers typically interact with the P&C market when they buy two products, vehicle insurance and homeowners insurance. Most consumers, furthermore, must buy these products. Florida law requires that all drivers secure vehicle insurance, and mortgage lenders almost always require individuals to secure property insurance. Although the two products are quite distinct, about 60 percent of consumers nationally buy both from the same companies.
The costs and features of these products are a problem. The prices that Florida consumers pay for homeowners insurance are the highest or second highest in the country; the prices they pay for vehicle insurance are now among the highest in the Southeast. (See Table 1 for automobile insurance comparisons; see Table 2 for homeowners insurance comparisons.) High insurance costs are not necessarily bad per se when they reflect actual risks, but they certainly can strain family finances. Florida’s median household income is $44,755, which means that nearly 10 percent of a typical family’s income goes simply to pay for these insurance policies. If Florida legislators want to make an economic difference for the people they represent, they should start by looking at insurance.
Although activities relating to these two forms of insurance pass through the same legislative committees and are overseen in the same offices, the ongoing crisis in property insurance and the emerging crisis in vehicle insurance have very different underlying causes, so they are best discussed separately.
Therefore, the following paper describes why and how the Legislature could go about its tasks of insurance reform in each of these categories. Following this introduction, this paper consists of two sections that outline the cases for reforming the vehicle and homeowners insurance systems, respectively. A conclusion sums up the paper’s findings. The paper, throughout, focuses on reforms that could reasonably be implemented in the 2012 legislative session and thus could begin to make a meaningful difference in Floridians’ lives very shortly thereafter.