R Street welcomes vote to right-size Fla Cat Fund
TALLAHASSEE, Fla. (Feb. 4, 2014) – The R Street Institute welcomed today’s unanimous vote by the Florida Senate Community Affairs Committee approving S.B. 482, a measure to scale back the size of the state-sponsored Florida Hurricane Catastrophe Fund.
Under terms of the legislation, sponsored by state Sen. Alan Hays, R-Umatilla, the Cat Fund’s mandatory coverage limit would be reduced by $1 billion per year, starting in the 2015-2016 contract year. The fund ultimately would shrink from the current $17 billion to $14 billion in the 2017-2018 contract year.
Given falling prices for catastrophe coverage in the global reinsurance markets, the reduction is expected to shift risk off the backs of Florida policyholders and taxpayers and onto the private market without requiring an increase in rates, according to R Street Florida Director Christian Cámara. Floridians are still paying a 1.3 percent assessment on their insurance policies to pay off the Cat Fund’s bond debts from the 2004 and 2005 hurricane seasons.
“Sen. Hays’ bill is a modest, commonsense approach to right-sizing the Cat Fund,” Cámara said. “It stabilizes Florida’s delicate insurance market and protects Florida consumers and taxpayers by reducing the likelihood or severity of post-hurricane taxes without raising rates on consumers.”
While the Cat Fund’s total claims-paying capacity is currently estimated to be $19.07 billion, enough to cover all of its obligations, a sufficiently large storm season could exhaust all of the fund’s resources, seriously hindering its ability to meet its obligations in subsequent years. In 2012, the Office of Insurance Regulation estimated that a Cat Fund shortfall of 25 percent would be enough to render nearly half of the state’s top 50 insurers insolvent.
