2005 hurricane season still proving costly for Floridians
Jun 4, 2008
The sale of bonds — and levies on insurance policies — could help pay off outstanding claims.
Orlando Sentinel–June 4, 2008
TALLAHASSEE–Whether you realize it or not, you’re still paying off the 2005 hurricane season every time you pay your auto and homeowners-insurance premiums.
The bill is about to get a little steeper.
Florida’s hurricane-risk managers will ask Gov. Charlie Crist and the Cabinet next week to authorize the sale of up to $625 million in bonds this summer to help pay claims still outstanding from the 2005 hurricane season, when three storms struck the state and a fourth brushed it.
Those bonds could be paid off by extending for two or three years the 1 percent assessments already tacked on to most insurance policies sold in Florida and expected to last until 2013. The assessments — $1 per $100 of premium — are levied against all auto and property-casualty policies, both personal and commercial.
Critics see the 2005 experience as a small-bore prelude to what could happen as a result of 2006 insurance reforms that ballooned the size of the state’s hurricane catastrophe fund. The so-called Cat Fund, limited to $15 billion in back-up coverage in 2005, is now on the hook to provide insurers with as much as $29 billion in such coverage.
With only $3.6 billion in cash, the Cat Fund would have to sell bonds totaling as much as $25 billion if Florida were to be hit by a Katrina-sized hurricane, or even another series of smaller storms.
The idea was that providing companies with low-cost back-up insurance would lower property-insurance rates. However, the average 15 percent drop is lower than forecast. Critics have complained the extra risk could lead to decades of assessments on homeowner, automobile and motorcycle premiums.
No one is sure the battered financial markets could absorb such a large bond sale.
"You don’t know until you do it, and who wants to find out then that you have a problem," said Dennis MacKee, communications director for the State Board of Administration, which oversees the fund.
To help cover 2005 storm losses, the fund sold $1.35 billion in bonds last year financed by annual assessments that had been expected to run through 2013. But those losses have since grown by more than $600 million because of new and reopened claims, officials said. No details of the new claims were available.
"That is going to be borne by everybody, and it’s from a hurricane season that happened three years ago when we didn’t have the added exposure," said Rep. Dennis Ross, a Lakeland Republican and one of the most outspoken critics of the 2006 reform.
The Cat Fund has turned to a team of financial brokerages to explore ways to tap into credit markets to keep the fund afloat after big storms.
The state also is considering sending Cat Fund manager Jack Nicholson and others to Washington to make the case for federal support. Fund managers had planned on asking Crist and the Cabinet for permission to start talking to the U.S. Treasury Department but have pulled the item from next week’s agenda.