Florida Insurance Market – A Must Read For Anyone In Florida

The State of Florida’s Smoke and Mirrors. The Florida Governor is doing something amazing. He is trying to make every homeowner happy about the premium they pay for their insurance. The plan was nothing but a pacifier for the residents of Florida, as it was crafted by “The Governor” and his merry band members of legislators. This plan is dangerous and will literally be destroyed by the wind. Instead of encouraging companies to create large reserves and write insurance, this plan will see the citizens paying for their losses through “Assessments”.

This crap has been fed to Florida’s citizens because it makes them happy. Nobody has ever explained what an assessment is or what will happen if the Governor’s “BET” goes wrong and we have more than one hurricane.

This would mean that EVERY property policyholder (renter or homeowner, commercial policy holder, etc.) will be required to pay a massive assessment. The assessment will be added to the next year’s premium. This means that if you were to lose your insurance, you will not be able to get it for the next year unless you have paid the premium PLUS assessment.


How bad is it? The amount of money paid out by the hurricanes will determine the assessment. Towers Perrin’s study estimates that the assessment to pay bonds to bail out the state would range between $1,700 and $14,000 per policy. Floridians get an average savings of $265 on 2007 property insurance rates. This is again a feeling good after the election.


Insurance companies have been demonized by the media and radio talk show hosts who don’t know much about the industry. The insurance industry is now being referred to as a racketeering and criminal enterprise. Agents are now uncaring moneygrubbers that make excessive profits for the citizens.

This rhetoric is not new, as my industry experience spans over 4 decades. The regulators were imposing limits on the amount of money that a carrier could make in the late 1970’s and 1980’s. They even required a repayment for premiums that had been “over charged”

Companies were investing their profits in evil ventures like building, office complexes, hospitals to increase the company’s value. Many mutual and stock companies also “giving back” in dividends. Even more, I remember the same talk-show hosts complaining about insurance rates back then. Yes, we are all old.


My job was with a property/casualty firm that had a net worth of $6,000,000,000. It was a calm hurricane season, and Florida insurance companies were protecting their rates, which, incidentally, were among the lowest in America at the time. We were informed that Andrew was on the way. “Andrew” begins with an “A”, the first storm of the season, in August. The rest, as they say, was history. The company I worked for was a proud one. They kept their word and paid out over $4,000,000,000. Rumors had it that they were selling buildings to pay claims. They were allowed to charge an “actuarially sound” rate, and they fulfilled their promise. Here’s a quick excerpt from Wikipedia for those who forget:

Andrew caused a storm surge of 17 feet (5.2m) near Florida’s landfall point.

Andrew caused 23 deaths in the United States, and three more in Bahamas. $26.5 billion (92 USD) of damage was caused by the hurricane in the United States. $1 billion of that damage occurred in Louisiana, while the remainder occurred in South Florida. The winds caused the majority of Florida’s damage, unlike other hurricanes. Florida lost $1.04 billion in agricultural production. The damage to the Bahamas was estimated at $250 Million. [15][9]

90% of Dade County homes had severe roof damage. 117,000 homes were damaged or destroyed.


One word: “Bleak”. The Governor of Florida has placed a huge bet. I hope that he wins, but it’s also possible that he won’t. The plan is nothing more than a casino bet. While it would be difficult now, the real solution would save Florida from severe financial consequences in the long-term. Invite all qualified insurance companies to the state, and they will charge the premium without regulation. This rate is calculated using losses over the past 30 years. The rates will initially be very high, and people would need to adjust to the high deductibles. But Adam Smith’s invisible hand will eventually move them to a level where companies and individuals take the risk and not the residents of Florida. Before I go, I want to share with you another Wikipedia article: The cost of hurricane losses in 2005 dollars.

Hurricane Season Costs (2005 USD)

1 Katrina 2005 $81.2 Billion

2 Andrew 1992 $44.9 billion

3 Wilma 2005 $20.6 Billion

4 Charley 2004 $15.4 Billion

5 Ivan 2004 $14.6 billion