Catastrophe fund needs a bailout

May 19, 2008

Insurance surcharge may be on way

By GABRIELLA SOUZA
gsouza@news-press.com
News-Press.com--May 17, 2008

The possibility Florida residents could soon be faced with higher surcharges on their home, auto and other insurance policies because the state’s catastrophe fund needs more money to pay claims from past hurricanes doesn’t set well with Andy Zawodny.

The Fort Myers resident is unsure how he would afford increased surcharges, given the state of the economy. Zawodny estimates he is paying about $200 a week just for gas.

"This is not a good time to raise surcharges," he said.

The Florida Hurricane Catastrophe Fund pays claims when insurers can’t. When it doesn’t have enough money, assessments are tacked on to car, boat, motorcycle and homeowners premiums. Businesses are also assessed extra on their premiums.

Florida residents are already paying a 1 percent surcharge because the fund was short on what was needed for claims in the 2005 hurricane season that caused billions of dollars of damage.

Fund officials say they still have a shortfall. They want to either extend the current surcharge – set to end in 2012 – or sell bonds and increase assessments to pay off the bondholders.

Fund officials say they need about $600 million.

Patty Frankenberger of Fort Myers says she understands the state needs the money, but thinks Florida should come up with a better option, like looking into heavier taxes for homes that are second residences.

Frankenberger said the possible increased surcharges will be difficult for her to afford.

"Our taxes keep going up every year," she said.

Cathy Whidden-Solis, president of Humphrey and Whidden Insurance Agency in Fort Myers, said the surcharges would not be well accepted by insurance holders.

"It’s going to hurt a lot of people," she said. "It’s unfortunate."

Gov. Charlie Crist, Attorney General Bill McCollum and Chief Financial Officer Alex Sink will decide how to deal with the shortfall later this month.

Florida insurance customers also can be assessed surcharges to pay for other problems. If state-backed Citizens Property Insurance Corp. doesn’t have enough to pay claims, insurance customers bail it out.

If an insurance company goes out of business, policyholders must help out there too. For example, Florida insurance customers have recently been assessed surcharges to cover unpaid claims from Poe Financial Group, a Tampa insurer that failed.

Paulette Halbrehder, owner of Cape Coral-based Halbrehder Family Agency, said too many customers are staying insured with Citizens Property Insurance instead of going to private agencies. This drains the funds Citizens uses for claims, and leads to an increase in surcharges.

But Halbrehder said she didn’t know if the state had another option.

"They’re kind of between a rock and a hard place," she said.

Meanwhile, a new report from credit rating agency A.M. Best Co. points to another potential problem for insurers and state-backed reinsurance plans: The nationwide credit crunch may make it difficult to find people willing to buy bonds that would help pay off claims after a storm.