Think back to 2004
A record four major hurricanes struck Florida in late 2004, meaning we are in the midst of commemorating the 10-year anniversaries of their landfalls. Former Gov. Jeb Bush visited Punta Gorda on Saturday to mark Hurricane Charley’s anniversary, and residents of Martin and St. Lucie counties recalled Hurricane Frances’ landfall on Sept. 4, while residents of Pensacola remember Hurricane Ivan striking on Sept. 16. Still to come is Sept. 26, when Hurricane Jeanne struck in almost exactly the same place Frances had hit.
More than eight years have passed since Florida was last struck by a hurricane, the longest period of calm in the state’s recorded history. But instead of using this providential streak to better prepare for the next big one, the changes our politicians enacted in 2007 to the state’s property insurance system would actually make a physical and economic recovery more arduous.
Once the lucky streak ends and Florida again faces a single bad storm or series of storms, state taxpayers will be saddled with years of debt to pay the bills incurred by the state-run Citizens Property Insurance Corp. and Florida Hurricane Catastrophe Fund, both of which were made much bigger by the ill-conceived 2007 “reforms.”
Fortunately, new leadership in the Legislature and a governor with the foresight and courage to undo some of those bad 2007 policies have made positive progress.
Citizens held 1.48 million policies at its peak, but it has shed more than a half-million policies to stand at 933,000 policies today. This 37-percent reduction has lowered the possible assessments Citizens could lay on policies that cover homeowners, renters, automobiles, boats, businesses, churches and even charities, from a high of nearly $12 billion to less than $4 billion.
The Cat Fund, Florida’s state-run reinsurer from which every property insurer is required to buy coverage, also has the ability to impose assessments on virtually every policy sold in the state above and beyond those levied by Citizens if it runs out of cash. During five of the past seven years, the Cat Fund’s own actuaries predicted it would face a shortfall if it were asked to cover its full obligations, which currently stand at $17 billion. A 2012 letter from the state’s Office of Insurance Regulation estimated that just a 25-percent shortfall by the Cat Fund would result in the insolvency or near-insolvency of almost half of the state’s top 50 property insurance companies.
The Legislature has scaled back the size of the Cat Fund, and eight hurricane-free years have allowed it to collect almost $10 billion, meaning it currently would be able to fund its obligations for one very bad year, although it likely would be flat broke in the following year.
One solution, which Citizens has already implemented, is for the Florida Cabinet to authorize the Cat Fund to negotiate the purchase of private reinsurance. This would minimize the need to issue debt, decrease the likelihood or severity of post-hurricane taxes and leave the Cat Fund better prepared for a second event.
The Legislature could also right-size the Cat Fund by reducing the amount the law requires it to sell. A practical way would be a gradual reduction of $1 billion per year over three years from the current $17 billion to $14 billion, which experts believe is an amount of coverage the Cat Fund could realistically cover and sustain year after year. The current “buyers’ market” in global reinsurance could easily and affordably assume the $3 billion. The Legislature could also establish a “circuit breaker” that authorizes the Cabinet to increase the Cat Fund’s size up to the current $17 billion on a year-to-year basis in case there is ever a spike or disruption in private reinsurance markets.
These are common-sense reforms that would cause little or no impact on insurance rates, while shielding Floridians from a crisis down the road. If the anniversaries Florida is commemorating this year and next teach us anything, it is that the state is not immune to back-to-back intense hurricane seasons. More can and should be done to prepare, including making Florida’s insurance system sustainable beyond one storm.
