Monday, March 05, 2007

Ashamed To Be a Republican in Florida

In 2004 and 2005, Florida was hit hard by six named hurricanes costing insurance companies and residents billions of dollars to restore the damage caused. My own condominium complex, with a total value of $3 million dollars, suffered almost $1 million in damage. Ultimately no one is going to pay for this other than the residents of Florida in insurance rates and taxes and fees.

Another major problem facing Florida is the escalating real estate taxes caused by huge increases in spending by local bodies – partly due to hurricane costs and partly due to uncontrolled development and poor planning (during a drastic market housing collapse we see thousands of new homes and condominiums being built – with few buyers in sight, water supplies dwindling and traffic becoming a nightmare).

The recent session of the Florida legislature, controlled by Republicans, resulted in the most incredible series of pie-in-the-sky measures imaginable – making me ashamed to admit that I am a Republican. After wisely increasing the state’s role in providing cheap reinsurance to casualty insurance companies (many of whom have fled the state), the legislature provided for a 30% rollback in premiums. I have no love for insurance companies, but this insanity will drive out the remaining companies. However, have no fear. This same legislature also made it possible for homeowners to eliminate wind damage from their insurance coverage. Now that will solve the problem.

If they didn’t do enough damage to common sense, the legislature also passed enabling legislation that would eliminate almost all property taxes and fund the shortfall with a huge increase in the sales tax. I guess they are hoping that short-term visitors will fund all of Florida’s needs. This smacks of the combination loan to pay off all your debts – only to end up a few months later with that loan and many new ones.

From the Sun-Herald (Excerpt)
March 5, 2007

“Fed by public anger, our politicians in Tallahassee are taking on the cost of insurance and the tax burden created by local government spending. Let's be careful about making decisions based on emotional populism. Let's make sure we know what we are doing.

Let's re-examine the insurance reforms now that Governor Charlie Crist and the Legislature have solved the insurance crisis. Start with the data. Have the property insurance companies been gouging consumers? Here are the pretax profit margins for property and casualty insurers (buildings and autos) across the United States.
Year Pretax Profit

1999 9.6%
2000 8.7%
2001 - 2.2%
2002 1.2%
2003 10.0%
2004 12.6%
2005 12.7%

Over the last seven years, property and casualty insurers have made an average of 7.5 percent pretax profit margin. Let's leave aside whether 7.5 percent is a reasonable profit for taking on risk. How much money is it reasonable to expect our state Legislature to save us, knowing insurers only average 7.5 percent profit?

The most the state Legislature and the governor can save us is by eliminating all of the insurance industry's profits. This means 7.5 percent is about the most we can save. It is unreasonable to think that the state Legislature and the governor can roll back insurance rates 30 percent and have the private insurance companies stay in the market.

It is now clear that many of the private insurers, based on the state-mandated lower rates, do not believe they can profitably insure in Florida and are exiting the state. Our two stories on Sunday explained some of the challenges this exodus is creating.

Private insurers fleeing the state is not an outcome that most people would have wished for. The governor and the state Legislature deserve credit for working on insurance reform, but we overpromised and must now bear the consequences. Now we are engaged in a similar and important debate about city and county spending habits.” David Dunn-Rankin


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