ACI in the Tallahassee Democrat: Preparing for Hurricane Season

Will Florida be storm-free for another hurricane season? Members of the Florida Legislature must think so, as they have once again hesitated to demonstrate fiscal prudence and protect Florida consumers from the ongoing and unfair financial mess known as the Florida Hurricane Catastrophe Fund (Cat Fund).

There is a great opportunity for reform of the Cat Fund now. By design, it is largely supported by post-event borrowing that will be repaid by all Floridians through “hurricane tax” assessments tacked on to the insurance policies of all homeowners, businesses, charities, religious institutions, renters, automobile policyholders, local governments and school boards. While Florida’s storm-free years have enabled the Cat Fund to build up a cash reserve, it would be irresponsible to believe the hurricane-prone state will indefinitely be spared from future storms. One day, a major hurricane or series of back-to-back storms will make landfall in Florida. One day, the Cat Fund’s reserve will be depleted; it’s happened before. When that happens, someone will have to pay for hurricane damage. That someone includes you — the Florida consumer.

Despite the Florida Legislature’s failure to implement change and restructure the Fund, all hope is not lost. The State Board of Administration (SBA), governed by Gov. Rick Scott, Chief Financial Officer Jeff Atwater and Attorney General Pam Bondi, has the ability to explore and evaluate the global capital and reinsurance markets to determine if there are private market opportunities that would benefit Florida. Spreading the state’s hurricane risk worldwide through private reinsurance, instead of concentrating it within the state, is an idea that has been long-supported by various Florida consumer groups, Florida association, environmental groups and some Floridians. This is what California does for earthquake risk and what Florida should consider. If there are private market products available that make economic sense for Florida, the state should be taking advantage of them.

Past experience has demonstrated that “hurricane tax” assessments affect most Floridians, including those who do not benefit from the state’s subsidized insurance program. Furthermore, whether a storm makes landfall in Miami or Panama City, all Floridians will be obligated to pay if the Cat Fund runs out of money to meet its obligations, and assessments could last up to 30 years.

Years ago, then-Governor Charlie Crist was instrumental in expanding the size of the dysfunctional fund beyond its ability to pay.  Today, the Cat Fund is obligated to provide up to $17 billion of coverage to Florida’s homeowners insurance companies.  It’s time to take this financial burden off the backs of hardworking Florida consumers.

Fortunately, global investors are interested in investing in weather-related catastrophes. With Florida being the most hurricane-prone state in the nation, investors are specifically seeking opportunities in the state, thus creating an oversupply of capital.  With that in mind, it would behoove the SBA to further investigate how the state can right-size the Cat Fund through the purchase of private market reinsurance. With reinsurance prices expected to fall again on June 1, it is my belief that transferring risk away from the Cat Fund would eliminate the possibility for future “hurricane tax” assessments and increase the possibility that the Cat Fund can meet its financial obligations.  These important changes will greatly benefit all Floridians before the next storm makes landfall.

Steve Pociask is president of the American Consumer Institute Center for Citizen Research, a nonprofit educational and research organization.  For more information about the Institute, visit www.theamericanconsumer.org. This article was published in the Tallahassee Democrat and is available on that website.

 

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