Florida Hurricane Catastrophe Fund Advisory Council Considers 2010/2011 Contract and Retention Changes, Mitigation Credits

Jan 13, 2010


The Florida Hurricane Catastrophe Fund (“FHCF”) Advisory Council met on January 12, 2010.  To view the meeting agenda, click here.

2010/2011 Reimbursement Contract and Data Call Changes

FHCF Chief Operating Officer Jack Nicholson explained proposed changes in the 2010/2011 FHCF Reimbursement Contract and how they will be reflected in the related proposed Rules. 

Many of the changes were made to conform the existing Rules to legislation that changed the term of the FHCF Contract Year, as well as to update the address of the Contact Administrator. 

One of the most significant changes in the proposed Rules is a specific exclusion for loss assessment coverage, as well as clarifying provisions regarding the proof of loss reports.  Application of these changes appears in the proposed 2010/2011 Contract as follows:

  1. Definition of residential structures:  Page 6
  2. Policies in force at time of loss:  Page 7
  3. Exclusions:  Page 8
  4. Offsets:  Page 9
  5. Interest based on four months:  Page 9
  6. Proof of loss reports:  Page 12
  7. Adjuster:  Page 15
  8. Interest on excess advances:  Page 16
  9. Delinquent payments:  Page 17

In reviewing the Contract, Advisory Council members expressed great concern that the FHCF losses are increasing due to fraudulent or abusive activities involving Hurricane Wilma claims.  After significant discussion on how these suspicious activities should be handled, the Advisory Council asked Dr. Nicholson to contact the Office of Florida Chief Financial Officer Alex Sink about how to better combat fraudulent activity.

Advisory Council members also voiced specific concern that insurers may not have enough incentive to thoroughly investigate suspicious activity once their FHCF coverage is triggered.  Additional comments were made that insurers are operating under a legal system that emphasizes the speedy payment of claims, but not necessarily their appropriate payment.   Discussion concluded that the system would need to be altered in order to fully address the perceived problem.

Ultimately, the Advisory Council approved the proposed Rules to be filed for Notice of Proposed Rulemaking.

Financial Market Update and Chief Operating Officer’s Report

John Forney from Raymond James gave a short update on the financial markets.  Mr Forney stated that, while the economy seems to be improving, several factors may be giving false hope to consumers.  Florida, in particular, has a great deal of real estate that is either in default or foreclosure.

Dr. Nicholson gave the Chief Operating Officer’s report, in which he updated the Advisory Council on FHCF wind mitigation credit policy.  He added that the insurance industry seems to be divided on the mitigation credit issue.  Currently, the impact of mitigation credits is capped by the FHCF, but, after fielding complaints from insurers that reinsurers do not afford full compensation for mitigation credits, Dr. Nicholson said he has been contemplating the approval of an Advisory Council measure to eliminate the mitigation credit cap.

He explained that, because the credits would reduce an insurer’s FHCF premium on policies for mitigated homes, it would consequently reduce that insurer’s FHCF coverage, thereby requiring the insurer to replace that coverage in the private market.  Dr. Nicholson further clarified that giving full credit for mitigation would not impact the FHCF capacity as a whole, but it would impact the allocation of that capacity. 

The Advisory Council did not take specific action on this item.

Dr. Nicholson reported that it appears the FHCF needs to issue additional debt to cover $364 million in additional losses for the 2004 and 2005 hurricane seasons.  It was agreed that options to cover this deficit would be reviewed.

In regard to the accounting problem caused by the recent legislative change for the FHCF contract year term, Dr. Nicholson related that he is working with the Florida Office of Insurance Regulation to preserve the intent of the legislation, while providing a remedy for the accounting issue.  He said that he is developing a legislative proposal that would cause insurers to enter into the FHCF contract by March, but delay the effective date until June of each year.  He is attempting to verify the viability of this solution if it were to be enacted with intent language.  A new draft of this legislation is expected by next week. 

Certain insurers have indicated that they would like to see the FHCF retention lowered.  Dr. Nicholson explained that this could cause the FHCF to be triggered more often, resulting in a situation that he characterized as “the worst of socialism.”   Advisory Council members opined that they did not understand the industry’s interest in this issue, because it does not seem that a lower retention would result in a substantial rate savings.  Advisory Council members also stated that they would not favor a proposal lowering the retention because they do not see a benefit to consumers.

Dr. Nicholson also gave an abbreviated report on the Florida Commission on Hurricane Loss Projection Methodology’s (“Commission”) pending recommendations on the State’s wind mitigation credit system.  The Commission will issue a report on February 1, 2010.  Dr. Nicholson advised that it appears the current system needs substantial changes.

FHCF Senior Attorney Tracy Allen reminded Advisory Council members of their obligations under Florida’s Sunshine Laws and warned them to avoid speaking to each other about Advisory Council business before or after meetings, or during breaks. 

The next Advisory Council meeting is scheduled for March 18, 2010 from 9 a.m. to 1 p.m.

The meeting was then adjourned.



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