Mysuncoast.com
By John McQuiston
November 16, 2011
The head of Florida’s Hurricane Catastrophe fund tells Governor Rick Scott that the fund should get smaller, which would likely mean that your homeowners insurance bill will get larger.
The “CAT Fund,” as it’s known, serves as insurance for insurance companies that sell homeowners policies here.
But it faces a three billion dollar deficit.
And the Fund’s Chief Operating Officer, Jack Nicholson, says it has grown too large to do its original job.
When Hurricane Andrew struck South Florida in 1992, it not only proved catastrophic to many homes and businesses, but to the companies that insured them.
“They were planning to cancel about 800,000 policies in the state,” Nicholson says. “Companies were going to withdraw from the state. We had to have something to provide them with some financial backing and support.”
So the state created the Florida Hurricane Catastrophe Fund. If another large disaster struck, it would insure that insurance companies could pay claims.
But in 2007, the Florida Legislature massively expanded the CAT Fund’s mission to reduce homeowners’ policy premiums.
“That was never intended to be the purpose of the cat fund,” says Nicholson.
Now, he says, it can’t afford to serve as a price suppressor. Tuesday, he told Governor Scott and his cabinet that the fund should be scaled back.
“It’s going to put the responsibility back on the insurance companies to pay their own claims,” says Florence Conlan, a Private Risk Advisor at Baldwin Krystyn Sherman Partners.
But that means that homeowners will have to pay more for insurance, probably 10% over the next seven or eight years, Nicholson says. Conlan believes it’s worth the cost to lose the risk.
“Wouldn’t we rather pay it on the onset than worrying about when we’ve lost everything?”
Conlan does work in the insurance business and those companies would likely be allowed to raise rates if a cat fund scale-back happens, but other supporters say that it would make the state more solvent.
Governor Scott has said he favors the idea.
