TALLAHASSEE — An analysis of Florida’s hurricane insurance system shows that reform to the Florida Hurricane Catastrophe Fund (FHCF) is necessary, but the impacts on the system as a whole must be understood before action is taken, according to Risk & Reform, a report released today by Florida TaxWatch, the nonpartisan, nonprofit, research institute and government watchdog.
The report examines the financing of the hurricane insurance system and analyzes existing proposals to modify the FHCF to determine the costs and benefits of these proposals and their effects onother components of the system.
“Florida’s property insurance system is broken and reforms are clearly needed to promote a functioning market that will encourage private insurers to return to Florida and reduce taxpayer liability,” said Dominic M. Calabro, president and CEO of Florida TaxWatch. “It is especially important that the state-run entities, Citizens Property Insurance Corporation (CPIC) and the Florida Hurricane Catastrophe Fund, which are designed to protect Floridians from the financial impacts of a hurricane destroying their home, are reformed before the next major storm makes landfall.”
The report outlines the interrelated parts of the system, examines how they are financed, and details the substantial exposure of CPIC and the current concentration of risk. Most importantly, while others have simply called for reform, this Florida TaxWatch report quantitatively analyzes several proposals for reforming the FHCF.
The report finds that currently proposed reforms will reduce the probability, frequency, and amount of potential FHCF assessments on the businesses, consumers, charities, auto owners and others who ultimately pay the FHCF Emergency Assessments, but will increase premiums.
According to the analysis, different reform proposals come with different costs and benefits. All of the reform proposals analyzed in this report would reduce the probability of Emergency Assessments from the FHCF, which would affect nearly all Floridians, but each shows an estimated increase in policy cost for the median policy owner. One proposal would raise the median policyholder’s cost by an estimated $19.25 annually (representing the lowest increase of the proposals analyzed), while the proposal with the highest cost would increase the same policyholder’s cost by an estimated $173.04 annually.
The report also notes that any reduction in exposure for the FHCF via reform increases the net exposure to CPIC, private insurers and reinsurers, Florida Insurance Guaranty Association (FIGA), and the State of Florida. Some immediate legislative reform of the FHCF is necessary because the latest estimate of bonding capability of the FHCF indicates that it is $3.2 billion short of funding its statutory obligations. That means that unless the reforms are made, FHCF will be selling reinsurance to insurance companies that may be unable to meet all of their obligations.
Based on the analysis, Calabro noted, “It is clear that reform is needed, but it is vital that any reform proposals are carefully analyzed to clearly understand the effects on the other components of the insurance system.”
Click here to view this report: Risk & Reward
This report continues our ongoing look at Florida’s insurance systems. For previous research on this topic, please see the Florida TaxWatch April 2009 Special Report, “Florida’s Financial Exposure from Its ‘Self Insurance’ Programs,” available here.
• John P. Lapotaire, CIEC
• Certified Indoor Environmental Consultant
• Microshield Environmental Services, LLC