State insurance chief shops plan to bolster hurricane catastrophe fund
Feb 10, 2009
Office of Insurance Regulation Commissioner Kevin McCarty is trying to enlist lawmakers’ support for a proposal to enlist the federal government’s help, if needed, to prop up the hurricane catastrophe fund.
BY JENNIFER LIBERTO
Times/Herald Tallahassee Bureau
Miami Herald–February 10, 2009
TALLAHASSEE — Florida’s top insurance regulator is lobbying congressmen to help prop up the state’s troubled hurricane catastrophe fund.
Office of Insurance Regulation Commissioner Kevin McCarty is shopping a new idea: If a big storm hits and the fund can’t borrow large amounts of money from private sources, he wants the federal government to promise to loan the state money.
The catastrophe fund has been a top concern for state officials because the bad economy and the credit crisis makes it nearly impossible to borrow the billions it would need in a major hurricane season.
Insurers pay the state for cheap backup insurance and tap that fund, as they did in 2004 and 2005, when hurricanes hit.
Two years ago, the Legislature broadened the cheap backup insurance fund, and forced insurers to pass on the savings to consumers. That kept property insurance rates from skyrocketing, but it also raised the chances that consumers, even nonhomeowners, would pay for major hurricanes after they struck.
Now the economy has put the squeeze on the fund and its ability to make good on its promise to reimburse insurers in big storms. The state was potentially on the hook for $28 billion last hurricane season, but only had access to about $13 billion to reimburse insurers, state catastrophe fund senior advisor Jack Nicholson said Monday to a Senate budget committee.
The shortfall could be even bigger this year, as much as $18 billion, Nicholson said.
In recent years, McCarty has asked congressional leaders to consider creating a national catastrophe fund to help reduce the state’s risk for paying for hurricanes. But that never really took off, because some land-locked states had little interest in helping Florida and its miles of risky coastline.
While the details are still being discussed, the federal government would basically promise to offer some sort of loan of last resort, in case the catastrophe fund can’t borrow money from the private market, as government officials predict. The state would pay the loan back by taxing policyholders (ranging from home to auto and even boat insurance policies) after a storm, in the same way it would have repaid the private sector firms.
Several insurance industry officials, including State Farm Florida, said they would welcome some sort of federal guaranty of a backup loan to the state catastrophe fund. State Farm is pulling out of the Florida’s property insurance market over the next two years, but it currently stands as one of the larger private purchasers of state catastrophe fund insurance.
Chief Financial Officer Alex Sink also said, in a statement, that the idea was worth pursuing and she looked forward to finding out how McCarty was received in Washington.