Advocates of expanding or retaining The Florida Hurricane Catastrophe Fund at its current level are either misguided or knowingly peddling false coverage.
Allstates Florida unit, Castle Key Insurance, serves as a perfect example. It received a 14.9 percent statewide average rate increase, only to receive a B-minus rating from A.M. Best -- and that's taking into account Castle Keys expected support from its parent company.
On its own, Castle Key would probably have received nothing higher than a C because it is required to purchase much of its reinsurance from the CAT Fund, which its own managers estimate does not have the ability to make good on its promises.
Anywhere else, an A.M. Best rating this low is the kiss of death for a primary insurer. Meanwhile, none of the traditional reinsurers that have historically come through after catastrophes in Florida has a rating less than A-minus.
This begs the question: Do advocates of the CAT Fund as it currently stands realize the harm it has done to Floridas insurance market? What was once designed to bring stability has become an albatross around insurers necks. This could be a reason national, well-known, well-capitalized insurance companies have left and been replaced with small operators, many thinly-capitalized, or worse -- Citizens Property Insurance.
Advocates for increasing the Cat Fund and those opposed to right-sizing it so it can actually make good on its promises are misinformed or more concerned with political expediency than with real consumer protection and true stability for Florida's economy.
Christian R. Cara is Florida director and a co-founder of the R Street Institute. R Street supports free markets; limited, effective government; and responsible environmental stewardship. It strives to craft pragmatic solutions to domestic policy challenges involving regulation, public health, the environment, entitlements reform, and the federal budget.
