SunSentinel.com
By Julie Patel
December 9, 2011
Lawmakers want to shrink a state program that sells cheap catastrophe back up coverage to insurers.
The program allows insurers to pass the savings to consumers so it’s no surprise state officials project rate hikes of about 10 percent under legislation proposed, HB 833.
Key legislators – the leaders of the House and Senate insurance committees – said today that they’re very supportive of the proposals, largely drafted based on recommendations from the state program, called the Florida Hurricane Catastrophe Fund.
All property and automobile insurance policyholders pay fees to offset the fund’s deficits after major hurricanes and Floridians are still paying 1.3 percent of their premiums for deficits from the 2005 hurricane season.
The bill would reduce the coverage amount from $17 billion to $12 billion; increase what amounts to a deductible from about $7 billion to $8 billion; and double what’s considered the co-pay to 20 percent.
Florida TaxWatch estimates that would raise premiums by $850 million, or about $173 for an average Florida policyholder who pays a $1,833 premium each year. That premium is double or triple in South Florida, TaxWatch estimates, so the increases would be much higher locally.
The state fund’s projections are similar, with a 10 percent rate hike, according to Jack Nicholson, who runs the program. But he said rates and fees Floridians pay could increase even without the legislation if it can’t pay what it owes.
“It’s easy to say we don’t want to raise rates but the worse [your insurer] can say is, ‘Great, you’ve paid your rates the last five years and we can’t pay to have your roof fixed,'” said Rep. Bryan Nelson, R-Apopka, chairman of the House insurance panel.
Nicholson projects six or seven insurers could fold if there was a rare storm, the kind that is projected to strike once every 100 years, and the cat fund has a 20 percent shortfall.
More than half of Floridians polled recently said they would be willing to pay $180 more a year in premiums to make the state program financially sound and 35 percent would not, according to the American Consumer Institute’s survey of 805 Floridians. ACI is a non-profit that supports less regulation consumers having a choice in matters instead being told what to do.
Nelson said other legislative priorities this year may mean it’s more likely lawmakers would approve one or two recommendations but not all: “Maybe we take bite out of apple and not take the whole apple.”
Don Brown, an insurance agent who is a former legislator, said he’s “optimistic” the legislation will get a hearing but he’s not counting on it: “Hopefully for the sake of stability in Florida that it will be taken up, but it’s still a long shot.”
Private reinsurers’ strategy of spreading catastrophe risk around the world has paid off. Florida has been hurricane-free the past six years, making it a good investment for the reinsurance industry, said Jim Massie, a lobbyist for the Reinsurance Association of America. Reinsurers “like Florida. It has catastrophe exposure. That’s the business they’re in,” he added.
The catastrophe fund sold more than $18 billion in coverage for the hurricane season that ended recently. In a worst-case scenario that required the fund to pay out all that coverage at once, the fund may not have been able to borrow most of the money needed because of the European debt crisis and the turmoil in the financial market, according to Nicholson.
Massie said the cat fund is inherently unfair to government agencies, businesses and non-profits because they would be subject to paying more overall to bail out the fund if it’s wiped out than residential customers. Meanwhile, they can’t benefit from the savings the fund has to offer because it doesn’t sell reinsurance for commercial property insurance coverage.
