Tuesday, December 18, 2012

(Mis)Conduct at Citizens... So what?


Recently, there has been a heated debate over the behavior by Citizens Property Insurance Corporation's decision makers.  On one side, the public and the media claim misconduct by Citizens' key personnel.  On the other side, Citizens' key personnel downplay the claims and appear angry at the allegations.  We could argue at length about who is right in the situation.  Instead, a more fruitful discussion is, "So what?"

Florida is subject to a large hurricane risk. Some argue that this is the "largest hurricane risk in the world... by orders of magnitude." This risk is understood by looking at history and to the future. Because there are large variations in climate and different legitimate perspectives on science, judgments of that risk will differ.

Scientific research demonstrates that judgements about risk arise from such things as ideologies, values, and trust.  This is as much true for the public as it is for scientists.  So, when Citizens' decision makers and the public demonstrate outrage with each others' decisions, be it about rates or hotel costs, it is a sign of a growing distrust of each other's ability to judge and manage risk and identify with each other.  This is as much a problem for the public as it is for Citizens itself.  

Citizens recently sold the largest catastrophe bond ever as a means of covering losses from a catastrophic event that exhausts its resources.  The sale demonstrated the importance of public and government trust in establishing a successful risk management scheme.  Standard and Poor's assessed Citizens' credit worthiness as A+, based in part by "support for Citizens from Florida's governor, chief financial officer, and legislature."  Growing descent about the risk and distrust of one another will eat away at this support and may challenge outside interests' faith in Florida's ability to pay for its catastrophes.   

Efforts to "refocus on the facts" and educate the public about its risk will likely be met with resistance.  It will only widen the divide between the public and Citizens' administrators because the information does not have shared value in society.  Indeed, much of the public is not worried about those facts, as they have facts of their own that speak to different concerns about the hurricane risk.

Florida must develop and maintain a version of the hurricane risk that is politically affordable in order to successfully mange it.  The public and Citizens' administrators need to be receptive of each others concerns, establish an insurable hurricane risk for today, and debate the merits of public policies to control the growth of risk into the future.  This will not only serve to establish a successful and stable risk management plan, but will help to reach Citizens' Board Chairman, Carlos Lacasa's new goal to "win back the credibility of the company in the eyes of the public."

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