A major hurricane hitting Florida this year would result in households there having to make up a shortfall in reserves for the state insurer of last resort by paying $14,000 each over the next 30 years, a consulting firm estimates.
The findings for a once-in-250-year storm event were made in a study by Towers Perrin Tillinghast commissioned by the statewide employers group Associated Industries of Florida (AIF), based in Tallahassee.
Towers Perrin's report noted that their illustrations of potential consequences as the result of recent legislative changes to Florida property insurance mechanisms does not contemplate other hurricanes after 2007, "which would further constrain funding and result in additional assessments.
For a once-in-50-year hurricane, the consultants estimated that annual assessments per average household to support the Citizens Property Insurance Corp. would be $5,640–or $188-a-year over 30 years.
David Dean, one of the authors of the report, said for a 50-year storm–before the 30-year payout began–there would be an initial assessment of $402 to support both Citizens and the Florida Insurance Guarantee Association, based on a projection that a number of insurers would go bust.
Even a one-in-20-year storm would result in $1,700 in costs spread over 10-to-30 years, Towers Perrin said.
AIF, in announcing the report's findings last week, said it was urging Citizens and state budget leaders to proceed cautiously as they work toward overhauling the insurer.
Before expanding any coverage, AIF recommended that Citizens first determine "the liability Florida will face, and if the state can cover future losses under existing coverages."
"Citizens has a responsibility to perform due diligence when they are asking to step into such risky territory as expanding coverage to 'all perils' in high-risk territories and commercial properties," said Barney Bishop, president and chief executive officer of AIF.
When another storm strikes, "Citizens may not have enough revenue to cover losses, and our property owners will take an enormous hit in their pocketbooks through additional taxes on their insurance policies," Mr. Bishop warned.
AIF said it is encouraging Citizens to further research its current financial stability, the fiscal impact of expanding its coverage lines, and to demonstrate that the company has the reasonable ability to pay potential losses without relying on debt.
Towers Perrin found that even a series of smaller storms across the state, similar to the 2004 season, would lead to assessments that exceed the incremental savings created by the legislation.
"If Citizens is expanded too quickly and without thorough examination, our state could be building a financial house of cards that could easily collapse," Mr. Bishop added, "Such a collapse would likely result in enormous state debt and further taxes on our insurance policies."
The Florida legislation to lower property insurance rates has involved provisions rolling back rates for Citizens and removing restrictions on the insurer requiring it to be non-competitive on price, and charge actuarially-sound rates that are no lower than the top-20 private insurers.
Also in the measure is language expanding the state catastrophe fund's capacity to cover 90 percent of losses between $6 billion and $35 billion, while also allowing primary insurers to purchase reinsurance from the Florida Hurricane Catastrophe fund at lower rates than the private market.
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