FHCF Right Sizing Proposal Up for Hearing
The so-called “right-sizing” proposal of the Florida Hurricane Catastrophe Fund (FHCF) is on the agenda of the Senate Budget Subcommittee on General Government Appropriations today. This proposal would increase the FHCF’s retention over time, and reduce the amount of coverage it makes available to residential property insurers.
I have written about this proposal, known in the Senate as SB 1372, several times. The idea has intuitive appeal– reduce the FHCF’s exposure, and thereby decrease the chance it will need to rely on massive assessments (taxes) or perhaps that it even will run out of money. This is a proposal worth considering, but not this year— at least not without tackling the real problem in the Florida property insurance market.
Some estimates I have seen about the impact of this bill are understated. To think that the bill will increase rates by 10% or less over five years is to understate the impact of the increased private market demand for reinsurance. If market conditions remain as they were last year, the impact will be closer to 14%. That’s the floor. Unfortunately, we already anticipate that reinsurance costs will be slightly higher this year. We also know that increased demand will drive prices up. Don’t be surprised if the real impact of the proposal over a five-year period is 25-30%. And this doesn’t take into account potential concerns with availability in post-storm scenarios.
If rates increase in the private market faster than Citizens, efforts to depopulate Citizens will be negated and the increased residual market exposure will increase Citizens’ reliance on bonding and assessments. Essentially, we’re swapping one entity’s assessments for another’s, and driving up rates in the process.
The best way to approach this issue is to look at the Florida property insurance market as a whole, making needed changes to the FHCF, Citizens and the private market to moderate the impact on policyholders and reduce the potential assessment burdens of both the FHCF and Citizens. Unfortunately, this type of comprehensive approach is not part of this year’s proposal and therfore has a significant change of improving the FHCF’s position at the expense of Citizens and the private market.