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Hurricane haymaker: State faces huge liability in storm

By J.D. Alexander

November 1, 2009 

Floridians want straight talk from public officials. They want to be able to form opinions on the direction our state’s headed with all the facts on the table.

That’s why I recently insisted that a required report on Florida’s long-term financial outlook must disclose that our state faces billions of dollars in unfunded liabilities if it’s hit by a major hurricane.

This disclosure isn’t pleasant reading. But as chairman of the Senate Ways and Means Committee, I know Floridians want and need to hear the truth.

So here it is: Our two state-run giants in the homeowners insurance market — Citizens Property Insurance Corp. and the Florida Hurricane Catastrophe Fund — are seriously underfunded.

Combined, these two entities could wind up $14 billion short of the cash they will need to pay claims if a strong hurricane hits.

How would Florida pay for this? The answer is that you would be asked to foot the bill, through assessments on your home, auto, boat and business policies.

Floridians should be aware that the CAT Fund — which provides backup insurance to private insurers — is on the hook to reimburse companies for up to $23 billion in hurricane losses this year.

Yet, the CAT Fund only has about $4.5 billion in cash and $3.5 billion in notes on hand. Experts believe the most it could bond under current global financial conditions is $8 billion. That leaves the CAT Fund with only $16 billion to pay claims — a sizeable $7 billion short of being able to meet its obligations.

Likewise, Citizens faces potential losses of $23 billion from a huge hurricane. Yet, it also only has $16 billion in claims-paying capabilities — it has $4 billion in cash, $3 billion in financing, and would receive $9 billion from the Cat Fund. That also leaves Citizens another $7 billion, or 30 percent, short.

And that’s assuming that Citizens gets its full $9 billion reimbursement from the CAT Fund.

We have a choice: We can allow Florida to dig itself deeper into this hole, or we can take steps now to encourage private insurers to return and compete in this state, and allow consumers to choose for themselves what they’re willing to pay to protect their homes.

When all the facts are on the table, I believe Floridians will choose a strong, competitive private market over an underfunded system that relies on post-hurricane assessments to pay its bills.

Republican Florida State Sen. J.D. Alexander represents Senate District 17, which includes parts of Hardee, Highlands, DeSoto, Glades, Okeechobee, Polk and St. Lucie counties.