Opinion | Why California and Florida Have Become Almost Uninsurable

Florida has a different flavor of market intervention. The state-run Citizens Property Insurance Corporation, which has turned into the fastest-growing insurer in the state, serves about 17 percent of insured Florida homeowners. People are eligible for Citizens if the only quotes they get from private insurers are 20 percent or more above the Citizens offer. But even Citizens’ rates are high (so as not to undermine the private market), so some people give up and go naked. About 15 percent of Florida homeowners have no property insurance, the highest share of any state, the Insurance Information Institute estimates.

In both states, the nightmare would be that insurance markets fully unravel and the state government has to take over entirely. There’s a precedent on the federal level. In 1968, Congress set up the National Flood Insurance Program because the private market wasn’t doing the job. Five years later, Congress began to require flood insurance for people living in zones at high risk of floods. Rates, however, were subsidized. Phasing out those subsidies has been politically difficult. And taxpayers are still getting hit. In 2017 Congress forgave $16 billion in debt that the program incurred so that it could cover losses from Hurricanes Harvey, Irma and Maria. The program is seeking cancellation of another $20.5 billion in debt now. People who have been flooded repeatedly account for a disproportionate share of claims. In one case, a $69,000 Mississippi home was flooded 34 times in 32 years, resulting in $663,000 in claims.

Returning to California and Florida: Watkins, who is an actuary, told me that insurers need to know that when they put in for a rate increase, “something rational will happen,” and customers need to know that “companies will be around to pay their claims over the long term.” She added, “I think what California and Florida have in common is an unreliable environment.”

Michael Soller, the deputy commissioner for communications at the California Department of Insurance, told me that the department held a four-hour workshop on July 13 on how to set rates. It looked at the two approaches that are common in other states: taking reinsurance costs into account and looking forward to assess risks, not just backward. The insurance commissioner, Ricardo Lara, whose position is elected, has not decided yet if he’s in favor. “I would say this is a top priority right now,” Soller said. “Everything is on the table.” Florida, meanwhile, is working to “depopulate” Citizens by getting private insurers to take over some of its customers.

Allowing private insurance companies to charge more would keep the market functioning, but it’s politically challenging. “People just don’t like to buy disaster insurance,” Yanjun Liao, an economist and fellow at the think tank Resources for the Future, told me. “That is a fact that is documented across the world.” Governments want insurance to be both affordable and available, but when it’s more affordable it’s less available and vice versa. “That tension is very hard to resolve,” Liao said.