CEI Responds to Commissioner McCarty’s Overview of the Florida Insurance Market


Eli Lehrer

Washington, D.C., —The Director of the Insurance Project at the Competitive Enterprise Institute today responded to comments from Office of Insurance Regulation Commissioner Kevin McCarty about the Florida insurance market. “Kevin McCarty is, in many respects, an excellent regulator,” says CEI Insurance Project Director Eli Lehrer. “But, in this case, a lot of what he says is wrong, misleading, or simply false.” Responding to McCarty, Lehrer argues the following:

– Contrary to McCarty’s assertions, new firms have not entered the Florida Insurance market in any significant numbers anytime recently. Since the current property insurance environment was created in 2007, at least seven major national insurers have either left the state or significantly cut back on writing new business. New firms have entered the state but only five new firms—all of them small—currently actively write new homeowners’ insurance policies for typical dwellings.  Only one firm has brought in out-of-state capital to do this.

– Capital has stayed out of Florida largely because the state’s practice of setting rates through the political process has made it impossible for most companies to achieve an adequate return on capital deployed in the state.

– The national and international reinsurance markets have the capacity and willingness to take on the risk—if the price is right. In the long run, the actual costs of private reinsurance will be lower than those of the hurricane catastrophe fund. After the severe 2004 and 2005 storm seasons, reinsurers and their capital markets competitors raised over $40 billion to support the unprecedented surge in demand for reinsurance by primary insurance companies.

– The Cat Fund does not have and, most likely, never will have the capacity to cover the obligations it has taken on. Following a major storm, it will likely collapse and require an enormous tax-payer-funded bailout.