Like all residents of states with significant hurricane risks, Floridians have to pay a lot for windstorm coverage. In an effort to control the costs of this coverage, the Florida Legislature established the Florida Hurricane Catastrophe Fund, a massive government-owned reinsurance entity. In theory, the Cat Fund (as it’s commonly known) provides reinsurance (insurance for insurance companies) at rates less than the private market would and thereby produces savings that can be passed on to consumers.
A illustrates how and why the Cat Fund was created and describes the current risk all Floridians face because of the fund’s potential $3.2 billion funding shortfall. In a press release announcing the video, its creators discuss the how the “hurricane taxes” associated with the Cat Fund will financially burden all Floridians.
Hidden Hurricane Taxes and You
All private insurers operating in the state are required to buy coverage from the Cat Fund, and Florida’s Citizens Property Insurance Corp. buys only Cat Fund coverage.
This system poses enormous risks to Florida’s fiscal future. According to R.J. Lehmann, Deputy Director of the Center on Finance, Insurance and Real Estate at The Heartland Institute, these liabilities have risen to multi billion dollar levels. “The Florida Hurricane Catastrophe Fund has $18.4 billion of liabilities this year, and the fund’s own management concedes that its funding structure would leave it billions short of its obligations should a major storm hit the Sunshine State.”
These liabilities are unpayable. No state has ever issued more than $11 billion in bonds all at once.
Given these and other systemic problems, changes are needed to reform the Cat Fund. New reform proposals include S.B. 1372 and H.B. 833, which are featured in the video. These bills are based on proposed reforms previously outlined by Jack Nicholson, the Cat Fund’s chief operating officer, and are designed to reduce or eliminate the possibility of the Cat Fund going broke after a storm and posing a risk to the state’s fiscal future. S.B. 1372 and H.B. 833 are supported by various business, nonprofit and consumer groups.
“For several years Associated Industries of Florida has supported reform of the Florida Hurricane Catastrophe Fund, and while there has been forward progress in the past, we believe the legislation that is being considered this year will play a positive and important role in restructuring the fund,” said Jose Gonzalez, Associated Industries of Florida Vice President of Government Affairs. “It’s important the Florida Legislature implement the necessary changes in order to better protect all Florida businesses, consumers, charities, churches and automobile policy holders.”
“Consumers should watch this video to learn more about how insurance works in Florida,” said Bill Newton, Florida Consumer Action Network Executive Director. While ‘solvency and assessment risk issues’ are not familiar to most Floridians, the video may help consumers understand their premiums. FCAN supports the legislation from Senator Alexander, Representative Hager and Florida Hurricane Catastrophe Fund Chief Operating Officer Jack Nicholson and I believe it is an incremental, measured path to necessary reform. But it is important that the bill remain as originally drafted so it has only minimal impact on premiums.”