The Florida Cabinet voted to extend a 1 percent insurance policy surcharge to cover hurricane claims that began in 2007 for two additional years through 2014.
The assessment covers outstanding claims that originated during the state’s devastating 2004 and 2005 hurricane seasons.
Jack Nicholson, senior officer of the Florida Hurricane Catastrophe Fund, said the 1 percent surcharge on all Floridians’ auto and homeowners’ insurance policies will continue through Dec. 31, 2014.
Nicholson said there is a $625 million shortfall that personal and commercial policyholders across Florida will collectively shoulder. The FHCF assessments apply to all property and casualty policies, including surplus lines policies, but not to workers’ compensation, accident & health, medical malpractice or federal flood.
Officials are hopeful that no further extensions will be necessary.
“The ultimate costs are uncertain but this could be enough,” Nicholson said. “We’ll revisit it next year.”
The hurricane fund pays claims when insurers can’t. When it doesn’t have enough money, assessments are tacked on to car, boat, motorcycle and homeowners premiums. Businesses are also assessed extra on their premiums.
Gov. Charlie Crist, Attorney General Bill McCollum and Chief Financial Officer Alex Sink decided the best way to deal with the state’s shortfall was to extend the 1 percent assessment for two additional years.
The hurricane surcharge is just one of several in Florida.
Florida insurance customers also can be surcharged to pay for other problems, too. If state-backed Citizens Property Insurance Corp. doesn’t have enough to pay claims, insurance customers bail it out.
If an insurance company goes out of business, policyholders must help out there, too. For example, Florida recently assessed surcharges to cover unpaid claims from Poe Financial Group, a Tampa insurer that failed. Meanwhile, a new report from credit rating agency A.M. Best Co. points to another potential problem for insurers and state-backed reinsurance plans: the nationwide credit crunch may make it difficult to find people willing to buy bonds that would help pay off claims after a storm.
The FHCF is a state run mandatory reinsurer which provides reimbursements to insurers writing residential property insurance in the state. Florida created the FHCF in 1993 following Hurricane Andrew.
State law requires that if the cash balance of the FHCF is not sufficient to pay losses that a broad base of insurance lines will be assessed to fund revenue bonds to pay the losses.
The FHCF issued $1.35 billion in bonds which are currently being financed by the 1 percent assessment on premiums for all policies renewed after January 1, 2007.
Associated Press contributed to this article