Wall Street Journal: Florida’s Sort-Of Republicans
Apr 8, 2013
The following article was published in The Wall Street Journal on April 8, 2013:
by Mary Kissel
The Sunshine State has a Republican governor and a Republican-controlled state Legislature. Yet for the second year running, Republicans are stalling a much-needed reform of the state’s taxpayer-backed reinsurer. It just goes to show that economic populism isn’t confined to the corridors of Capitol Hill in Washington.
Last month state Rep. Bill Hager and state Sen. Alan Hays—both members of the GOP—introduced bills to shrink the Florida Hurricane Catastrophe Fund. The “Cat Fund,” as it’s known, has $17.2 billion in liabilities and $8.5 billion cash on hand. In the event of a big wind, insurers would foot $7.2 billion before tapping the fund. The Cat Fund estimates it could raise $7 billion in a pinch, too.
The problem is that a Category 5 hurricane or a series of small storms could inflict as much as $25 billion in damage, if history is any guide. Add it all up and the Cat Fund could face a multi-billion dollar deficit if a big wind blows, and that’s assuming the bond market calculation is accurate. In the event of a shortfall, the fund would tax property and casualty insurers, who would pass those costs onto Florida consumers.
Messrs. Hager and Hays watered down their original reform proposal and proposed shrinking the fund’s size by $1 billion annually for the next three years to secure bipartisan support. The actuary for Florida’s Insurance Consumer Advocate estimates reinsurance rates would rise by 1% a year, as insurers replaced the coverage with private reinsurance. But since reinsurance prices in the real world are falling, the effect would be negligible. In other words, there’s no better time to reform the Cat Fund than, well, now.
Even that economic logic wasn’t enough to sway Republican Reps. Miguel Diaz de la Portilla, Nancy Detert and Joe Negron, who voted with Democrats in committee to reject an even more watered down version of the Hays bill. They’re afraid that Floridians will quail at any increase in insurance rates, however minuscule—or nonexistent. The votes make passing Cat Fund reform much harder, given parliamentary procedures in the Tallahassee legislature.
Gov. Rick Scott supports reform of the Cat Fund and its counterpart, Citizens Property Insurance Corp., which is another fiscal basket case. A Citizens reform bill is making its way through the Senate. But Cat Fund reform may die if the governor doesn’t intervene. If that happens, Floridians had better pray for sunny skies for years to come.
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