Florida lawmakers have put taxpayers at risk by not reforming the Florida Hurricane Catastrophe Fund or Citizen’s Property Insurance Corp. in advance of the 2012 hurricane season, an insurance executive has warned.
Bradley Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers (ABIR), said that by failing to act, the state’s lawmakers put politics ahead of the public interest.
“The legislature’s failure to act this year is a sign of election year politics trumping sound fiscal policy and long term consumer protection,” Kading told members of the Chartered Property Casualty Underwriters Society.
He said Florida policyholders risk higher hurricane tax assessments, higher hurricane insurance prices and the risk that their insurer will become insolvent due to the inability of the Cat Fund to fully pay its hurricane reimbursement obligations to ceding insurers.
Kading said lawmakers failed to act despite advice from officials including Florida Hurricane Catastrophe Fund Chief Operating Officer Jack Nicholson and state Insurance Commissioner Kevin McCarty that the state needs to reduce the size of the Cat Fund to where it can be supported by the debt financing assessments.
“Nicholson noted that in three of the last four years the Cat Fund has been mandated by law to sell catastrophic protection to Florida’s ceding insurers but, due to bond market volatility, would not likely have been able to issue sufficient bonds to pay all the claims from a large hurricane – including events that may occur in 2012,” Kading said.
The ABIR also cited a letter McCarty sent to legislators informing them that “if the Cat Fund experienced a 25 percent shortfall in its claim capabilities from a large hurricane event, as many as 24 of the top 50 home insurance writers would have a regulatory capital deficiency.”
McCarty wrote that the companies that would be subject to some regulatory action collectively make up 35 percent of the Florida home insurance market.
He also noted that this could cause insurance rates to increase an average of seven percent due to the inability of the Cat Fund to provide additional protection for hurricanes in following years.
While criticizing lawmakers, Kading commended Nicholson, McCarty Kading, state Rep. Bill Hager and Sen. J.D. Alexander for supporting Cat Fund reform.
He also cited the Florida Consumer Action Network, Florida Tax Watch, the Florida Chamber of Commerce, Associated Industries of Florida, the League of Municipalities and the Florida Wildlife Federation “for their support of this important legislation and their commitment to further reducing the post-event hurricane tax assessment burden.”
Kading said that reinsurers like those he represents provide “dependable, growing capacity” to meet U.S. consumer needs, and, in addition have capital in the bank to pay their claims, unlike the Florida Cat Fund that are deficient.
“Such funds are dependent on bond debt and assessments on all Florida consumers to pay their claims. These bonds saddle future consumers with an unnecessary and growing debt burden,” he said.
Kading said “politically inspired restrictions on the ability of reinsurers to provide capacity for their clients” represent the “biggest threats to U.S. Cat markets.”
Source: Association of Bermuda Insurers and Reinsurers (ABIR)