During the FINREP Florida Forum in 2022, hosts, Thomas Howell Ferguson P.A. CPAs (THF), and the Florida State University College of Business, the Dr. William T. Hold/The National Alliance Program in Risk Management provided participants the opportunity to hear from experts within the Florida insurance industry.
Charles Nyce, Ph.D., a professor within FSU’s Center for Risk Management Education & Research, presented his research on the industry. Professor Nyce has been a professor within the department for 12 years with an expertise in Corporate Risk Management, Catastrophic Risk Financing, and Alternative Risk Financing.
Nyce presented his findings demonstrating the differences between the private and public insurance markets and what insurers could potentially look forward to if the market remained dominated by private insurers, as well as if it were dominated by public insurers.
He noted that one key difference was that private insurance companies do not have the leisure of establishing stability in their premiums like state-run insurance companies. Insurers must continue to develop their own premium pricings based on the market. Private insurers also cannot spread risk through time. Due to competition, they cannot collect on money from previous losses such as natural disasters.
Although public insurance companies can perform the opposite of private companies in these matters, there are still some caveats when government intervention is needed to manage a crippling insurance market.
In a state-run insurance market, Citizens Property Insurance Company would serve as the main insurer for Florida residents. As the only dominant insurer for the state, this would enable the company to set higher premium rates at their discretion. It also gives the company more ability to issue Catastrophe bonds or Cat bonds. These bonds transfer the risk from natural disasters from the reinsurer to investors. A public insurer would also minimize the potentiality of fraud.
However, it cannot solve the issue of unintended consequences. Having a state-run insurer cannot help the potential risks from having a large catastrophic storm. Any potential large storms could also throw the insurance market off balance and affect all Floridians.
Nyce concluded his presentation posing potential alternatives if the market switched to state-run insurance such as incentivizing new companies to form, removing large externalities from private markets, and stabilizing current private insurers with equity investments.
While there was no definite answer to the ongoing insurance crisis, he provided participants with solutions that could serve as band-aids. These aids included: reducing storm losses by building better infrastructure, reducing or eliminating the potential for fraud, smarter future growth, and being cognizant that there are consequences with action or inaction.