The good news for Florida this hurricane season extends beyondthe quiet storm activity. According to an October Miami Herald article, financial consultants suggestthat the Florida Hurricane Catastrophe Fund (FHCF) is as strong asever with $10 billion in cash on-hand. The FHCF will be able tocover its obligations this hurricane season after years of accruingvalue.

The FHCF was created after Hurricane Andrew when the Floridaproperty insurance market virtually collapsed. It isessential today in providing reinsurance protection on a tax-exemptand non-profit basis, supplementing the private reinsurancemarket.

Since it was created in 1994, the FHCF has protected the marketfrom collapse and has provided tens of billions of dollars insavings to homeowners. It has weathered all the storms,including the 6 major hurricanes that hit Florida in 2004 and thenWilma in 2005. In all that time, it has provided essentialcoverage. It has kept the market working, protected homeowners, andsaved tens of billions of dollars.

Some private reinsurers and other groups have falsely andrecklessly alleged that the FHCF provides “phantom coverage.” This misinformation adds nothing to what should be a constructivediscussion about how to improve the Florida homeowners insurancemarket.

Many challenges exist with the Florida market, including overallrate adequacy and the continued suppressed rate level for CitizensInsurance Company (the state insurance company), but the FHCFremains a key component in keeping the market standing. AsFlorida moves the system to rate adequacy, the most importantpublic policy measure needed is to provide additional risk spreadand reinsurance capacity by enacting a national backstop program tosupport the FHCF.

We support legislation that creates a stronger public-privatepartnership, such as a privately funded national catastrophebackstop, to respond to large-scale natural catastrophes, includingmajor hurricanes that would exhaust the capacity of the FHCF. TheHomeowners and Taxpayers Protection Act of 2013 provides theprotection Florida and states around the country need to addressthe inevitability of natural catastrophes. Floridians need thistype of legislation enacted before the next major naturalcatastrophe strikes.

Reinsurance costs and availability seem to be as changeable asthe weather. A storm season of low activity can temporarily lowercosts and boost availability, but a major hurricane or earthquakein a densely populated urban area could cause hundreds of billionsof dollars in damage and totally exhaust the capacity of theprivate reinsurance market.

Capacity in the private reinsurance market has a significantimpact on the cost of homeowners insurance. The fact is thatcapacity is limited, and there is no guarantee of access to fundingfollowing a year with one or more major events. Moreover,prices for private-market reinsurance will almost certainlyskyrocket again following the next series of majorevents.

The FHCF works well and is a needed supplement to private marketreinsurance. With the passage of a national catastrophe backstop,we can make it work even better and strengthen its ability to helpcontrol the cost of homeowners insurance. The time to enact such abackstop is now.