While deregulation is always a good thing, we shouldn’t be fooled into believing that the recent news that Florida’s office of insurance regulation has “relaxed their standards of solvency” is anything akin to deregulation or reform. Insurance companies, property owners, and taxpayers remain in a situation as precarious as a beachfront home in the middle of hurricane season.
Insurance companies in the state of Florida will now be allowed to continue operating despite having a level of funds that previously would have had their license to operate revoked. What this means is an insurance company that by industry standards (you know, the standards that actually reflect the reality of a situation) doesn’t have enough money to pay their customers in the event of a reasonably likely hurricane season, is perfectly fine by the new standards of the Floridian government.
This news comes on the heels of a veto vote by governor, Charlie Crist on a measure that would have allowed insurers to charge higher rates (a measure he worked on and supported prior to his separation with the Republican party). Allowing insurance companies to charge the rates they want would have allowed them to rebuild their underfunded coffers–the one thing that would actually represent a real step toward reforming Florida’s insurance market.
So, while it is great that the state won’t step in and shut down companies, insurers in Florida are no less prepared to weather a bad hurricane season and just as likely to find themselves needing state assistance to pay claims after a storm. And because the state has an underfunded catastrophe fund the very likely event of a bad hurricane season could send the state of Florida begging for money from the federal government and every taxpayer in the country to pay for beach homeowners who have been paying too little for insurance for too many years.
Not content with exposing Florida to financial catastrophe by taking on responsibility for insuring coastal properties, Florida Governor Charlie Crist (R) continues his assault on his state’s fiscal health, this time by imposing nonsensical populist measures on utilities. As Seeking Alpha’s Roger Conrad observes:
Florida Governor Charlie Crist is running for US Senate in 2010–and darned if he’s going to let power utilities’ need for capital during a recession stand in his way.On Thursday, Crist effectively fired two long-standing members of the Sunshine State’s Public Service Commission, replacing them with wholly inexperienced former editorial page editor David Klement and Benjamin Stevens, the chief financial officer for the Pensacola Sheriffs’ Office.
It doesn’t take PhD in political science to get the message here: Florida utility regulators will, in Crist’s words, “put consumers first”–i.e., reject the pending rate hike requests from FPL Group (NYSE: FPL) for $1.3 billion and Progress Energy (NYSE: PGN) for $500 million or else.
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Crist’s move will almost certainly make rate cases more contentious in Florida, and by extension make it more difficult for companies to recover regulated utility investment.
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Ultimately, Florida consumers will suffer most if Crist’s moves really signal a shift to so-called pro-consumer regulation in what’s historically been a model state for utility/regulator relations. Long-term planning for power needs will become problematic, and utilities will pull back capital spending rather than see their balance sheets weakened.
What is surprising is that this upheaval isn’t taking place in an historically contentious state like Missouri or New York. Rather, this is happening in Florida, heretofore a state with very constructive utility/regulator relations.
Crist’s moves are indeed galling in light of Florida’s past history of relatively sound governance at the state level. Now the state’s residents will need to worry about blackouts — in addition to the state being able to shoulder insurance payments — the next time a large storm hits. (Thanks to Margaret Griffis for the Seeking Alpha link.)
It may not be in a debacle like California’s, but I still find it galling to see my home state of Florida go from being one of the best governed states in the country to leading the nation in a particularly destructive sort of fiscal insanity. But if the first step toward a cure is an accurate diagnosis, The Economist is helping on that count. As the current issue notes:
Two years ago, after homeowners complained about rising insurance premiums, the governor, Charlie Crist, leaned on firms to cut prices and offered Floridians state-subsidised policies. Private insurers curtailed their operations or pulled out. When the next hurricane hits, the repair bill will land squarely on Floridian taxpayers, rather than being spread among global insurers. It would be hard to devise a surer formula for economic catastrophe.
By the time such a storm hits, Crist may be in the Senate. Expect him then to try to steer federal dollars to clean up the mess he helped create.
For more on state-subsidized insurane, see here.
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