Florida CFO Proposes Cat Fund Repair

Florida Chief Financial Officer Alex Sink unveiled a proposal today to reform the Florida Hurricane Catastrophe Fund, which she said could reduce the potential for future assessments on Florida's insurance policyholders.

As she explained it in a statement, the governor and his cabinet would be given the ability to set both the reinsurance levels and pricing of the cat fund's optional coverages, giving greater flexibility and accountability to the management of Florida's reinsurance fund.

This move, said Ms. Sink, would promote increased competition in the private insurance market.

Ms. Sink, who oversees the Department of Financial Services, said she frequently hears from state residents who wonder “why they have to pay these taxes [assessments] on their insurance polices. If we want to reduce the potential for future assessments, we need to reform the Hurricane Catastrophe Fund to allow us to be more nimble and respond to the volatile financial and insurance markets.”

The CFO said she is preparing legislation and will urge legislative leaders to implement the proposal during its upcoming special session. Ms Sink said she will present her proposal Oct. 16 at a cabinet meeting.

If approved by the legislature before the end of the month, the reformed cat fund would begin evaluating financial and insurance market conditions and recommend to the Gov. Charlie Crist and his cabinet the level and pricing of cat fund optional coverages for the 2008 hurricane season.

The cabinet would make a final decision by Feb. 15, 2008, in advance of the time when a majority of private insurers negotiate their private reinsurance contracts.

While the proposal would change the operation of Florida's cat fund, the structure and mandatory coverages created by the legislature would not change, her agency said.

“We talk a lot about taxes, but we don't talk much about the potential for assessments,” said Florida Insurance Consumer Advocate Bob Milligan. “Floridians are facing these taxes every day, and CFO Sink's proposal will allow us to better manage the state's cat fund to benefit Florida's consumers and promote certainty and stability in Florida's insurance market.”

In January, the Florida Legislature provided for the state catastrophe fund to make available an additional $12 billion in optional reinsurance coverage to primary insurers at a discounted rate–with savings to be passed on to home insurance customers.

Not only is the expected rate relief not being realized, but Floridians have taken on substantially more risk for future assessments from the cat fund, according to Ms. Sink.

The legislature also expanded the coverage provided by Citizens, the state-backed insurer of last resort. Citizens, according to Ms. Sink, is now writing policies at actuarially unsound rates.