What if Florida homeowners could cut their property insurance premiums in half? It would save homes and stimulate the American economy, according to Steve Geller, a former state senator from Cooper City.
Geller, who served as a Democrat, is an attorney at Greenspoon Marder in Fort Lauderdale. He’s taking up the cause in Congress, testifying before the U.S. House Financial Services Committee’s Oversight and Investigations Subcommittee early this month as an advocate for a national disaster insurance policy.
Geller knows insurance. He served as president of the National Conference of Insurance Legislators and was chairman of the Florida Senate’s Property & Casualty Insurance Subcommittee when Hurricane Andrew struck.
The Real Deal caught up with Geller to discuss why we need a natural disaster insurance policy and how it could impact the local housing market.
You suggested creating a national disaster insurance policy to the U.S. House Financial Services Committee’s Oversight and Investigations Subcommittee. What was your argument, in a nutshell?
Insurance companies are trying to protect themselves from the time risk of the 100-year storm, not just the actuary risks. They don’t charge an actuarially sound number because it ignores the time risk. Instead, they charge 10 times or 20 times the actuarially sound number, so they can have enough money saved in five or seven years to cover the risk instead of going out of business.
The federal government doesn’t have to worry about time risk. The federal government can absorb a $75 billion loss if it occurs in year one of the 100-year storm cycle. If you are charging an actuarially sound number, you are just as likely to make money as you are to lose money. So the federal government could charge actuarially sound rates and not worry about going out of business.
How would that impact the housing industry?
The goal is to keep people in their houses, right?
If you are a single-family homeowner and you live near the water, your insurance is probably $1,200 or $1,500 a month. Eighty percent of Florida’s population lives near the water, and no part of the state is more than 80 miles from salt water. So there’s no place in the state where you can get really cheap insurance. If we can reduce insurance rates by 50 or 60 percent with a national disaster insurance program, which is possible in some areas by having an actuarially sound cost, we could keep more people in their homes. It would be an economic stimulus.
What about reinsurance? How does that play into this?
The biggest reinsurance companies in the world are foreign companies. We are sending our American dollars abroad for reinsurance just to deal with the time risk factor. If we were able to put together a national natural disaster program and dramatically reduce the cost of reinsurance, it will have a dramatic positive effect on the U.S. balance of trade.