Bills are quietly moving at the Capitol that would change the 40 year old system designed to help Floridians needing to rebuild or repair their homes but whose insurer is bankrupt.
This legislation will cost consumers additional hurricane "taxes." And after a bad hurricane or series of hurricanes, the legislation could delay getting needed money to pay claims.
While there is a small segment of the industry that is supportive of this legislation, they cannot point to any scenario where the proposed changes can in any way save money for Florida policyholders; it can only cost them more money.
The fact is, in the wake of 1992's Hurricane Andrew a dozen insurance companies folded. After the 2004-2005 hurricane seasons we saw the Poe Financial Group—with nearly 320,000 policyholders—collapse. The Poe liquidation left behind nearly 20,000 unpaid claims worth about $230 million.
In recent years, we have seen a number of smaller domestic insurance companies go under despite seven years with no hurricanes
Since 1970, the Florida Insurance Guaranty Association (FIGA) has been the cavalry that rides to the rescue when an insurance company goes under. The other insurance companies quickly pitch in 2 percent of their premium—generally within 30 days—to "pay the cavalry." This 2 percent is then divided up between all policyholders statewide and collected over time.
Today, two bills that have been filed–SB 324 and HB 211–require FIGA to assess policyholders directly through a "pass-thru" mechanism that is much slower than the current "up front" process, with payments beginning about 90 days from the assessment order, and continuing for up to a year.
While nobody is keen on paying an extra two percent on their insurance premium, it is this type of "commonwealth" approach that is used in most other states. In fact, the National Association for Insurance Guaranty Funds opposes these proposed changes to FIGA.
After a hurricane, or series of storms, if FIGA needs money quickly it would need to borrow and run up interest costs. In the Poe example, FIGA estimates it would have cost an extra $24 million if it had borrowed the $230 million it needed to pay claims.
$24 million extra! What if other companies had failed at the same time? What if Citizens Property Insurance Corp. and the Florida Hurricane Catastrophe Fund (CAT Fund) also had to borrow to cover hurricane costs? Borrowing costs would soar as capital becomes scarce or, as is feared by the CAT Fund's director, becomes unavailable.
Lawmakers have feverishly sought ways of reducing the possibility of hurricane "taxes" in recent years. This legislation flies in the face of these efforts. Our "cavalry" has worked well for 43 years—let's not mess with it now.
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