Florida looks for ways to boost hurricane fund
Feb 10, 2009
Sarasota Herald-Tribune--February 10, 2009
By LLOYD DUNKELBERGER H-T CAPITAL BUREAU
TALLAHASSEE – With State Farm pulling out of the Florida property insurance market, the Senate budget chairman Monday expressed concern about many of those consumers moving into new insurance companies that may not be able to pay their claims quickly after a major hurricane.
“I think this is one of the potentially most significant risks to the Florida economy, even more so than our budget issues,” said Senate Ways and Means Chairman JD Alexander, R-Lake Wales.
Alexander’s comments came after testimony outlining the potential inability of the state hurricane catastrophe fund to pay up to $29 billion in claims following a major hurricane in the coming year.
Due to an unreliable national financial market, state officials said they would only be able to borrow about $3 billion for the so-called Cat Fund following a hurricane. Coupled with $7.6 billion in cash in the fund, officials estimate they could be short $15 billion to $20 billion in the event of a major hurricane in the fall.
Alexander said that could complicate matters for some 800,000 of State Farm’s customers, who will have to find a new insurance company over the next few years because the state’s largest private insurer is leaving the property market.
Many of those consumers will be moving to smaller, Florida-based insurers that rely heavily on the Cat Fund for their backup insurance.
“It has resulted in them leaving Florida and losing for many, many folks in Florida an option to buy a trusted policy so that they can sleep at night and know that State Farm, unlike some of these other companies, won’t have any issues finding the check to write them,” Alexander said. “That’s worth a lot to a lot of us. I don’t want to wonder about the insurance policy I’ve bought.”
Belinda Miller, a deputy insurance commissioner, said the state was taking steps to reinforce the Cat Fund, including a trip this week to Washington, D.C., by state Insurance Commissioner Kevin McCarty, who is talking to officials and congressional members about getting help from the federal government.
State officials are looking at other ways to shore up the fund, including options similar to last year’s payment of $224 million to Warren Buffett that would have allowed the state to borrow $4 billion in the event of a major hurricane.
Miller also said the Cat Fund would be able to pay all its claims, although it could take some time given the current volatility of the financial markets.
But the potential for economic upheaval remains, with two rating agencies saying the state needs to strengthen the Cat Fund or face the possibility that the agencies will downgrade their financial ratings for the smaller insurance companies.
If that happens, it could undermine thousands of policies and potentially invalidate home mortgages that require qualified insurance coverage.
The rating agencies have given the state until May 15 to resolve the issue, with the expectation that the Legislature will come up with a plan when it meets in its annual session beginning next month.