Barney Bishop: Hurricane tax won’t stabilize insurance
Barney Bishop • My View • March 16, 2010
As the state legislative session kicked off this month, I began to wonder if I was experiencing deja vu.
While it is not unusual to champion a legislative cause for more than one year, how many years will it take for the Florida Legislature to return the Florida Hurricane Catastrophe Fund (CAT Fund) to its original mission of providing stability for huge hurricane events, such as Hurricane Andrew, and Citizens Property Insurance Corp. to its original role as the state insurer of last resort?
While progress was made last year, and our elected leaders crafted HB 1495, which was the first step to stabilizing Florida’s property insurance market, we continue to have concerns over the financial stability of the CAT Fund and Citizens. According to their own estimates, state government task forces and outside experts, these state entities are not charging actuarially sound premiums.
Instead, they rely on post-event borrowing paid off by a “hurricane tax” on policyholders statewide through the form of long-term assessments. At a time when our businesses are still struggling because of a down economy and charities are facing potentially devastating funding cuts, it is impossible to fathom how these groups will be able to afford to pay these “hurricane taxes.”
Additionally, late last month we were presented with another insurance dilemma because of late-filed or renewed insurance claims from the storms of 2005. While the Cabinet wisely requested more information, should the decision be made to pay the $710 million in reimbursements from these storms, all Floridians and businesses, including charities, will once again be forced to open their pocketbooks.
The CAT Fund’s own analysis suggests there is currently around $4.5 billion in hard assets to pay potential claims that could top $26 billion in a bad year. While it will most likely be impossible to collect the additional funds to pay claims in either an Andrew-sized storm or even a Category 3 storm such as Wilma, Floridians will be in quite the predicament should changes not be made to the CAT Fund.
In the current session, the Florida Legislature has the opportunity to drastically reduce the exposure of the CAT Fund and reduce the risk it poses to Florida’s economy. If our elected officials react in a timely manner, we can take advantage of excess capacity in the private reinsurance market to ensure that Florida policyholders will be paid when a storm occurs. By spreading Florida’s hurricane costs to risk-bearers around the world, we will better protect all Floridians, including homeowners, renters, businesses and charities.
The Legislature would also be wise to continue incremental reform of Citizens and the private insurance market. By continuing — and perhaps accelerating — the “glide path” to stability our leaders adopted in 2009, we can ensure that our scarce resources are devoted to improving our communities, supporting employers and helping Florida’s most vulnerable, rather than subsidizing the state’s most fortunate.