A storm is brewing in the Senate over the states Hurricane Catastrophe Fund, which backs up insurers and gives them the means to offer lower-cost coverage to Floridians.
Driven by reinsurers, some policymakers have hoped to slowly reduce the overall size of the so-called Cat fund, on a path that could drive up individual property insurance premiums.
A bill (SB 1262) being discussed in a workshop Thursday in the Senate Banking and Insurance Committee seeks to do that in a number of ways --for example, reducing the maximum amount of reimbursement that property insurers can collect from the backup fund. The measure also would drop the amount of mandatory coverage for the Cat fund over time, meaning insurance companies would have to get the difference from the private market.
But a second idea has emerged that proponents say could reduce premiums by expanding the bonding requirements from one to three years, a move that could generate $6 billion a year without giving much more of the market to private reinsurers.
"We have to manage rates and risks, this does both," said Sen. Jeremy Ring, D-Margate.
Ring tried to get the idea included in the Cat fund bill in the committee. It didn't get a particularly favorable reception.
But the debate is expected to heat up again on March 20 when the legislation returns for a vote by the same panel. Rings proposal could also result in a floor showdown over the direction of the backup fund, which has grown as the state has avoided a major storm for seven years.
The bill, sponsored by Sen. Alan Hays, R-Umatilla, reduces the maximum reimbursement amounts that insurance companies would buy from the Cat fund, and otherwise seeks to reduce the overall financial obligations of the fund. The idea is to reduce the likelihood and amount of bonding and emergency assessments charged to Florida residents in the event of a shortfall by insurers in the wake of a major hurricane.
Business advocates such as the Associated Industries of Florida and the Florida Chamber of Commerce back the measure, saying they fear massive hurricane "tax" assessments after a major storm or series of storms, putting more risk on the backs of Floridians. The assessments are levied on most insurance customers when companies can't pay. The business community says the market should favor private companies underwriting more of the risk.
"What we need more than anything is capital to come to our market to cover this extraordinary risk we take every day," said AIF and Reinsurance Association of America lobbyist Don Brown. "We want to spread the risk globally, not concentrate the risk in Florida."
Jay Neal, director of the advocacy group Florida Association for Insurance Reform, said the better approach would be to first reduce the overall size of Citizens Property Insurance Corp., a state-backed insurer that sells property policies to homeowners. It's the largest property insurer in the state and would be most threatened by inability to pay claims in the event of an enormous storm.
Hays has proposed reducing the amount of reinsurance coverage that the CAT fund is required to provide by $1 billion a year, from the current $17 billion to $14 billion by the 2015 fiscal year.
Hays bill could add 1.2 percent a year to premiums, said Florida Insurance Consumer Advocate Robin Westcott. However, the increase is expected to be offset by an anticipated drop in reinsurance rates, Westcott said.
What I see is a tremendous opportunity right now where you see that ability to reduce the Cat Funds liabilities and really have no impact to consumers, Westcott said.
Ring expects more backers of his proposal will be on hand next week to lend support for his proposed amendment.
The companion bill (HB 1107) received a warm reception as it was workshopped by the House Insurance and Banking Subcommittee on Wednesday.
