Florida’s Public Option

Florida has a public option for property insurance.  Here is Randy Holcombe writing at The Beacon:

After Hurricane Andrew hit Florida in 1992 some Floridians were having difficulty purchasing homeowners’ insurance. (The reason: rates are regulated, and at the regulated rates some properties are too great a risk.) So, the state government formed Citizens Property Insurance Corporation, which is owned and operated by the State of Florida.

As originally envisioned, Citizens would charge rates above those charged by private insurers, to make Citizens the insurer of last resort. Nevertheless, Citizens found plenty of customers.

After two bad hurricane seasons in 2004 and 2005 property insurance rates in Florida rose, and in his campaign for the office, current Governor Charlie Crist promised voters that if elected he would see that their property insurance bills “dropped like a rock.”

One tactic he used was to change Citizens’ rate structure so it was competitive with private insurers. His idea, like President Obama’s idea with health insurance, is that with a public option, private insurers would have to keep their rates in line or risk losing customers to the government insurer.

…Today about 30% of homeowners’ policies are written by Citizens, which is the largest property insurer in the state. It’s about to get bigger too. The largest private insurer, State Farm, had a rate request rejected last year, and now is pulling out of the state altogether (for property insurance; they’ll still insure your car)….

Everybody in Florida knows Citizens is a fiscal time bomb. Already, every Florida insurance policy (on homes, boats, cars, etc.) pays a surcharge that goes to Citizens, but Citizens still doesn’t have sufficient reserves to weather a major hurricane. When one comes, Florida taxpayers will be on the hook for the bill.

The legislature knows this, and actually passed a bill last year that would have done a great deal to solve the problem by partially deregulating rates private insurers could charge. State Farm would have stayed in Florida had that bill taken effect, but it was vetoed by the Governor. The public option is displacing private insurance.

In Florida, the public option has meant a substantial socialization of insurance, subsidization of the public option by those who take a private option, and the creation of a fiscally-unsound public insurance company despite the subsidy.


Fortunately health insurance economics is different than property and casualty in a state like Florida. As described, Citizens is not pricing risk correctly and this will become evident when a hurricane hits. There's no similar analogy in health care. Claims are steady. No health insurance company is prepared for some future cancer wave or anything like that. So, like AIG in Sept 2008, if one were to hit, it would become a public problem anyway.

More on the Florida Property Insurance problem, from the James Madison Institute, at this link
Property Insurance

Awesome example, from start to finish (or impending doom). The gov't has no competitive advantage (except losing money) in insurance. Stick with public goods and leave the rest to COMPETITIVE markets...


A moral hazard problem has existed for a long time, but in the other direction. It's pretty much set in stone what property insurers will pay, but with health insurance doctors or hospitals can dictate the procedures. As medicare rates were arbitrarily reduced, doctors took up the slack in ordering more procedures.Insurance companies try to reduce this, but it involves a lot of paperwork on both sides. In particular, going through an employer involves a ton of unnecessary transaction costs separating the consumer from the end costs.

A public option doesn't really change much, other than to accelerate this type of system. As long as we keep doing health care this fashion, costs will continue to skyrocket without that much improvement in care.

If private health insurers pull out of America entirely, won't they leave behind a larger pool of profitable healthy people for the public insurance plan?

In other words, isn't a direct comparison between national health insurance and single-state property insurance completely meaningless?

There are plenty of examples of fiscally unsound government programs of questionable effectiveness operating in the same space as private business.

Can we find any historical evidence that the US government has been able to create and maintain programs that, over a span of decades, remain solvent and are generally seen as good solutions? What about other countries?

Highway system, national defense, FBI, Weather system, gps/communications, FDIC, Coast Guard, National Parks, AEC, Corps of Enginers. YMMV.

To some extent the Florida property insurance public option makes sense - the taxpayer at large subsidizes expensive coastal properties that will be destroyed when the next Hurricane Andrew hits. But:

1- The owners of these properties also tend to be the wealthiest, meaning they will end up kicking in the most (even though FL does not have income tax, these people pay more sales taxes, implicit corporate income taxes, etc.)

2- These same areas massively subsidize the rest of the state, primarily through tourism, without which there would be no Floridian economy.

Property insurance of any kind is not comparable to health insurance, but especially not homeowner's insurance.

This is why I can't support Charlie Crist, its bad enough when democrats act socialist... when republicans do it, its unconscionable.

For liberals, driving the private insurers out, underpricing premiums, and making up the difference with taxes (on the rich) has been and remains the plan. Florida isn't a problem, it's the prototype.

RE: steve: "Highway system, national defense, FBI, Weather system, gps/communications, FDIC, Coast Guard, National Parks, AEC, Corps of Enginers [are government programs that, over a span of decades, have remained solvent and are generally seen as good solutions]"

If we believe that these are successful government programs, I wonder if the organizational patterns exhibited by these programs could be adapted for a public health care option; this would at least give us an optimistic baseline to compare with the current health care system.

RE: Neal: "The ONLY insurance company which is actually good for the people who buy into it is a fiscally unsound one."

What makes you say this? Isn't it reasonable to defend oneself against some possible (ruinous) worst-case scenario with regular insurance payments that are inexpensive relative to said worst-case scenario? Or are you arguing that our predictive models are inadequate for insurance companies to make good enough predictions about how large their cash reserves must be to handle a possible "worst-case scenario spike"?

Mr. Caird excepted, people seem to be missing the point.
Citizens is an excellent example of what will happen with a public option in HC. If/when medical care doesn't suddenly become inexpensive pols will be under too much pressure to keep rates low. The public option will charge rates below actuarially adequate levels and the taxpayer will subsidize. The difference between property and health insurance is irrelevant.

I know at least ONE person enamored with the Florida system†¦ and he’s the CEO of a reinsurance company. Why would that be? If a major hurricane threatens South Florida he’ll re-insure a significant share of the risk for Citizen’s, at very inflated rates†¦because remember, the price controls are only at the retail level, what Citizens pays for reinsurance is totally unregulated.
Crist has two unpleasant options. One is allow the hurricane to come and bankrupt the state, the second is pay a reinsurer ridiculous rates.

I think state's property -insurance is better then a private insurance company because atleast you have the certainly that the state will pay you eventualy while private companies you never know how much they last.home insurance

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