While the insurance companies worked to satisfy claims there were so many of them that there were backlogs for months at a time. Clients were left to figure out how to survive without having insurance money in their hands and tempers began to flare on all sides of the crisis (Burr, 2006).
As additional natural disasters continued to loom over the sunshine state and wreak havoc, insurance companies won the right to begin raising their premiums to try and recover from the massive and unprecedented losses that they had suffered over the past decade (Fogg, 2006).
The legal decision to allow an increase in premiums pleased the insurance companies however it angered the policy holders in significant numbers.
The Sunshine State is suffering from a symbolic cloud cover of epic proportions. The ominous overcast outlook is a result of two major factors in the Florida insurance atmosphere -- public outrage that continues to build over rate hikes and dropped policies, and the threat to Florida's economy this insurance crisis poses. The state needs both short-term relief and a long-term solution, but a magic formula is yet to be found (Fogg, 2006)."
While many suggestions have been tossed around to try and resolve the problem of insurance crisis in Florida, including a one cent raise in state sales tax with the proceeds going to bail out the insurance companies, most of the idea suggested have been met with anger or refusal from Florida homeowners whose lives have been turned upside down by the recent hurricanes and are struggling to survive while at the same time making the effort to maintain their homeowner's insurance policies.
Bruce Douglas, chairman at Citizens Property Insurance Corp., the state-run insurer of last resort, raised the sales tax idea at an October "Insurance Crisis" forum in St. Petersburg, Fla., according to local news reports. At the same meeting, Florida Insurance Commissioner Kevin McCarty stressed the importance of making homes better able to withstand catastrophic storms (Fogg, 2006).
Another option would be difficult to pass by Florida's insurance lobby: to allow Citizens to write all windstorm policies in the state, as well as all perils in high-risk areas. This could unburden the private insurers of the worst risk, while providing Citizens with capital to turn to during future catastrophes (Fogg, 2006)."
Experts and laymen alike agree that there is a current insurance crisis in Florida with regard to homeowner's policies, however, the solution is not easy nor being agreed on by all a parties.
Solutions
The insurance crisis in Florida began in the early 1990's and has not been solved because of the constant hurricanes and claims that have occurred there (Razzi, 1996).
Insurance companies have moved to raise premiums, been refused, then years later been allowed to do so after losing hundreds of millions of dollars along the way.
Clients in Florida who have been victims of hurricanes and other problems have raised serious concerns about the response times by insurance agents and companies and are angered by the rapidly rising premiums of late in the effort by the insurance company to recoup losses (Razzi, 1996).
One example of premium increases was seen shortly after 1995 when companies not only raised the prices, but tripled them.
When all was said and done, the insurance companies realized they had taken on too much risk at to low of a cost and when disaster struck they almost lost their business in some cases (Razzi, 1996). Insurance companies are bound by a strict set of codes and rules and are expected to step up and pay out every single claim that is legitimate. The very purpose of insurance is to be there when needed (Razzi, 1996). Because of the trust and importance placed on the insurance companies it is important that the current and ongoing crisis in Florida be addressed as soon as possible.
There are several steps that can be taken to correct the current crisis in Florida with regards to homeowner's insurance.
One of the most obvious methods of curing the crisis is to raise the premiums that are being charged for insurance in the state of Florida. While this sounds like an easy step it is actually quite complicated. It has to be approved not only by the state insurance commission office, but also by political financial watchdogs that have the power to allow or not allow such a move (Razzi, 1996).
The rate hikes are designed to recoup the losses experienced during natural disasters however, must remain low enough for clients to be able to afford to obtain insurance.
While rate hikes are an obvious...
Because of the constant issues that insurance companies have had with regard to natural disasters in Florida for the past decade there will be several steps needed to turn the crisis around for good (Razzi, 1996).
One of the things that must be done is to push for federal and state level reforms that will provide relief when natural disaster strikes before the crisis is fully handled.
The insurance companies need to be relieved of their insurance risk for the next few years so that they can continue to pay out for the claims that are currently pending, while recouping some of those losses with increased premiums.
Insurers are driving hard to get states and the federal government to relieve them of disaster risk. Industry representatives say that if a hurricane as strong as Andrew were to hit a densely populated area, such as Miami, claims could exceed $50 billion - and wreck the industry (Razzi, 1996)."
One of the solutions that has been suggested to help alleviate the problem of Florida insurance crisis has been the idea of a natural disaster insurance plan at the federal level. If the plan is passed it will mean when a natural disaster occurs, and catastrophic losses are the result the federal insurance would kick into gear and alleviate the independent insurance companies from their liability.
Companies are pushing Congress to create a natural-disaster Insurance plan, similar to the existing National Flood Insurance Program, which would shift some of the risk to taxpayers. States have been important players since the riots of the late 1960s, when many set up last-resort Insurance plans to cover urban areas that private Insurers wouldn't touch. Now 30 states have such pools (called FAIR plans, for Fair Access to Insurance Requirements) for hard-to-insure areas (Razzi, 1996). Seven states have special windstorm pools to take care of high-risk beachfront properties (Razzi, 1996). Florida's insurer of last resort, the Joint Underwriting Association, is now the state's second-largest insurer (Razzi, 1996). But the state is not happy about market share: It pays a bounty of up to $100 for every policy a private company takes off its hands (Razzi, 1996)."
In addition to trying to provide solutions for the insurance companies, there needs to be solutions that are aimed at helping the clients in Florida as well.
One of the suggestions that has been made in the effort to deal with the insurance crisis in Florida, is to storm proof homes (Longman, 1994).
Much of Florida is about mobile or module homes or homes that are not built to withstand the high powered winds that hurricanes produce. The time has come to hold contractors responsible for the strength of the structure that they build (Longman, 1994).
Legislators need to come together and develop mandates that will require new home construction to be built strong enough to withstand hurricane force winds and to be built away from commonly understood flood zones (Longman, 1994).
If the homes are constructed stronger, the liability will be reduced by not incurring as much damage when bad weather does strike.
While the advent of JUAs on the surface appear to be the answer, several studies have been conducted over the years and found that many of the groups are not adequately funded to pay claims in the event that a disaster occurs and claims are filed.
Because of this it is vital that state insurance legislators step in and protect homeowners, by demanding accountability by any entity collecting insurance premium funds.
The insurance industry as a whole has never been adequately funded in Florida to cover the disasters that have happened.
The time has come to allow a rate hike that will provide the proper amount of coverage. While this is a solution that initially will anger policy holders; when the rewards begin to be realized, by way of faster response time, less hassle with claim payouts and other benefits, the anger will give way to security and support.
Conclusion
The crisis in Florida for the insurance industry as it relates to homeowners' policies have been widely discussed across the state. While the companies continue to scramble to pay the claims that have been filed following several recent hurricanes the state legislators have difficulty agreeing on how to handle the problem. Solutions must be beneficial to both the industry and those who support it as policy holders.
Changing business laws to mandate stronger property construction, providing methods for acceptable premium increases, and public education…
