Insurance Groups Urge Fix For Fla. Catastrophe Fund

Florida may have dodged a bullet avoiding a major storm in the 2008 hurricane season, but insurance industry groups have warned lawmakers about the need to address the state’s underfunded Hurricane Catastrophe Fund.

“We are extremely thankful to have weathered the 2008 season with no major hurricanes,” said Bob Lotane, a spokesman for the National Association of Insurance and Financial Advisors in Florida. “However, we hope that this does not mask the very deep-seeded problems in our hurricane insurance matrix.”

Florida was not hit by any major hurricanes, but Florida Insurance Council executive vice president of the Sam Miller noted that there were more storms overall in the area.

"Just because Florida was spared does not mean that hurricane activity is down,” he said. “The fact is we remain in the middle of a 20-year cycle for increased hurricane activity,"

Lynn Knauf, director of personal lines for the Property Casualty Insurers Association of America, offered an even longer estimate for the cycle at as many as 50 years. Florida was one of several coastal states that the PCI noted faces significant problems, and the group called on lawmakers to respond accordingly.

“To help protect homeowners, state governments should stabilize the financial condition of these coastal insurance markets as property exposure continues to grow,” said PCI Southeast Regional manager William Stander.

The hurricane season is officially over Nov. 30, but Mr. Miller noted that next year’s hurricane season is not far away and the Catastrophe Fund faces a shortfall of $10 billion to $15 billion. In addition, the turmoil in the economic markets would make raising additional funding through bond issues more difficult.

The most likely solution, Mr. Miller said, would be to reduce the Fund’s total obligations from its current limit of $28 billion to the $16.5 billion ceiling that was in place prior to a 2007 law expanding the fund.

That law, he noted, only expanded the fund for the 2007, 2008 and 2009 seasons. “It’s going away anyway,” he said, which in addition to the acknowledged shortfall should make it easier for lawmakers to accept eliminating it early. “It isn’t real anyway,” Mr. Miller said.

By rolling back the Cat Fund, the state would effectively push insurers to purchase more reinsurance from the private market, Mr. Miller noted, and the Council called on state lawmakers to allow insurers to include these increased costs as they calculate rates.

This is especially the case for the state run insurer, Citizens Property Insurance Corp., said Mr. Miller. Lawmakers froze Citizens rates in 2007, and there is already concern that Citizens must raise its rates to avoid assessments on taxpayers in the aftermath of a major storm.

“We urge policymakers and regulators to address the serious underfunding of our catastrophe fund in addition to inadequate rates being applied in the state-run insurance company and also with the private insurers taking policies from it,” said Mr. Lotane. “The solvency of not only these entities is at risk but, in fact, the solvency of the state as well should our good luck regarding catastrophic storms turn around.”