Group Pushes Its Hurricane Solution

Nov 11, 2008

Florida Underwriter--November 1, 2008

By Sharon K. Moorhead, Contributing Editor

This year’s relatively tame hurricane season in Florida has not quelled the fears of a small group of people in St. Petersburg. For two years they have been sounding a wake-up call of impending financial disaster should a major storm hit Florida.

In November 2006, distressed by rates and capacity in the homeowners’ market and critical of the Florida Hurricane Catastrophe Fund’s (Cat Fund) operations, former state legislator and insurance agency owner Don Crane and eight other executives began searching for a solution.

Their idea: the establishment of an independent state entity they have named the Florida Reinsurance Corporation (FRC). The state-owned entity would manage all hurricane coverage in Florida, handled much like the federal flood insurance program through private insurers, but with the funds from all windstorm premiums collected held by the state. The Cat Fund would be morphed into this exclusive insurer of Florida’s hurricane risk.

One of the plan’s primary backers, long-time catastrophe claim adjuster Dan Montgomery, was quoted in the St. Petersburg Times this summer as warning, “We’re sitting naked this year. If we get hit this year, we’re finished.”

Other members are William “Bill” Ballard, a retired corporate attorney; Crane’s daughter-in-law, Selina Crane, a vice president and underwriter at Wachovia; Richard Winning, owner of Derby Lane dog track; Bud Risser, an oil distributor and convenience store chain owner; Robert A.G. Berns, a retired Marine colonel with top management and combat leadership experience, along with program evaluation and briefing of the $8.4 billion Marine Corps budget in Washington; Tom Cleary, a commercial insurance broker; and Jim Marshall, an insurance consultant.

After intense research, FRC went public with its major fears regarding what it calls the “potentially devastating financial exposure to the next major hurricane season” in Florida – and a suggested solution.

How It Would Work

According to the group, the FRC would result in better-managed risk and lower premiums for policyholders, with the added benefit that more of the two-thirds of reinsurance dollars that reportedly now go overseas could be kept at home. It also would facilitate the return of private insurers to the cheaper and more predictable task of covering property loss exclusive of hurricane risk.

To avoid the difficulties of selling bonds to cover losses that the Cat Fund has encountered in the credit-short economy, Montgomery suggested contingent capital financing (like a line of credit to use if needed), to be paid back with this dedicated inflow of windstorm premiums. The proposal warns of huge increases in assessments to all policyholders, and aims to reduce premiums while re-establishing a competitive private insurance market in the state. Obviously, no small task.

Extensive details in defense of their proposal can be found at the group’s website at, where public critique of the proposal is welcomed. Members also make presentations to local groups, attempting to explain the complex problems as they relate to the risky positions held now by both the state and all Florida policyholders, along with the merits and huge dollar amounts presented in the FRC plan.

Task force member Bill Ballard recently spoke with Florida Underwriter on behalf of the group.

Q. With your knowledgeable and energetic group operating in the wings while the lead insurance players in the state government and private insurance sector struggle to find answers to these complex issues, are you hopeful there can be a meeting of the minds anytime soon? Have you been able to persuade any of the key players to see value in your proposal? What kind of access have you had to present your facts?

A. We are hopeful but I cannot say that our hope is well founded. Our persuasion to date has been directed toward having the concept recognized as being worthy of review by disinterested actuaries and economists. No firm commitment to accomplish that has been obtained. We have been able to present the concept to many knowledgeable executive-branch staff in Tallahassee, a few legislators and some trade and civic groups. Representative Bill Heller has made a proper review of our solution an element of his re-election campaign.

Q. It appears that Chief Financial Officer Alex Sink shares your aversion to keeping Florida citizens on the proverbial hook for such high levels of risk. You have cited interest in your proposal from former state Comptroller Robert Milligan. Have you been able to help many legislators understand the real dollars in the assessments their constituents might have to endure? What atmosphere do you anticipate in Tallahassee next session?

A. No, we are not averse to the risk. Our position is that we, the citizens of Florida as a defined population group, already have the risk. When insurance companies have to dip into their own funds, as opposed to the pool of our premiums, to pay big hurricane claims, they have to recapture those funds if they are to stay in business. They do it with higher premiums in the future. It is the same with the reinsurance companies that provide back-up coverage to the insurers. They want to make it back in the short term. Taxes on profits of insurance companies and the profit demands of investors in insurance companies, – together with other factors – make hurricane premiums too costly and too erratic. Surveys conducted by the insurance industry show that a great majority of our citizens do not understand the potential assessments that they will pay for decades if they stay in Florida after the next big hurricane. I cannot tell you what the legislature knows or what it will do.

Q. With the fiscal fiasco the state finds itself in, is your proposal even more relevant today? What has changed with the state budget’s ability to handle catastrophes?

A. We think it is well worth an in-depth review. Any efficiency in our economy is welcome anytime. The very big thing affecting the state’s catastrophe handling ability is the crunch in the credit markets. If the fund cannot borrow to its limits due to the credit crunch, Citizens and its policyholders have a problem.

Q. With politics at a fever pitch, a global economic near-panic, bankruptcies,

foreclosures, bailouts, and the like, how can you get people to focus on something that may seem almost abstract to them, namely hurricane risk?

A. Short of sending them a big bad hurricane, I don’t know.