ALEX SINK: Reducing Floridians’ risk
Feb 28, 2008
Avoid hidden taxes by sharing insurance burden
Florida Today--Feb. 28, 2008
Part of my job as Chief Financial Officer is identifying opportunities to reduce financial risks on the people of our state, and that is exactly the intent of my proposal to reduce the risk of hurricane insurance assessments.
In a Feb. 18 editorial asking the Legislature to “show us the money,” FLORIDA TODAY suggested that my proposal to save Florida taxpayers and businesses billions of dollars in assessments — taxes — should wait until Floridians actually receive last year’s anticipated 24 percent discount in our wind insurance polices.
I agree that we need to hold insurance companies accountable and get to the bottom of why we haven’t seen the expected rate reductions from some insurance companies. And I applaud the Legislature for their efforts to expand upon the property insurance reforms of January 2007.
However, a number of things have changed since last year, warranting a public discussion about the large amount of insurance risk on the backs of Floridians.
For example, a Category 3 hurricane striking South Florida or Tampa Bay this summer could easily cause $35 billion in damages. At our current level of exposure through Florida’s Hurricane Catastrophe (Cat) Fund, the state would be forced to issue $28 billion in bonds to raise enough money to pay homeowners’ claims.
And to pay for these bonds, the state would place $1.8 billion each year for 30 years in hidden taxes on Floridians’ insurance policies.
My proposal increases the amount of co-insurance that an insurance company must have in order to obtain discounted reinsurance through our Cat Fund; reducing our current risk exposure by $3 billion. While this is a small part of the extra risk Floridians assumed last year, it does represent a first step to reducing our exposure.
Staff of the Cat Fund have estimated this plan could save Floridians from paying yearly assessments of as much as $184 million per year for 30 years when hurricanes return to our state’s coastlines. That’s a total tax savings of up to $5.5 billion for our state’s families and businesses, with minimal or no impact on policies.
Additionally, the world financial markets have become more volatile in the past year. This instability has already hampered Florida’s ability to raise capital in the bond markets. Should a bad storm hit our state, we could be forced to bond up to $28 billion in a difficult market.
I am very concerned about our ability to sell bonds of this magnitude at a reasonable price and I am not alone. The Cat Fund’s Advisory Council last month expressed “concern” about the “realistic potential to adequately fund” our increased insurance risk.
As the state’s risk manager, I know that risk without reward doesn’t make business sense for our state or financial sense for Florida’s families. That’s why I am working with Florida’s legislators in an effort to reduce the risk of insurance taxes on Floridians and businesses.
Sink is Chief Financial Officer of the state of Florida.