Plans to reform Florida’s state-backed reinsurance facility with proponents scaling back their proposals.
The Florida Hurricane Catastrophe Fund has been the subject of legislative reform efforts for several years as its financial advisors have consistently warned the fund could not raise the statutory $17 billion in coverage it would need to pay property insurers following a major hurricane.
This year, lawmakers stepped forward with a series of proposals designed to resolve that issue including reducing the Cat Fund’s obligation from $14 billion to $17 billion over a three-year period. Lawmakers also contemplated lowering the amount of coverage individual insurers could purchase and increasing the aggregate amount the industry had to pay before it could access the Cat Fund.
Those proposals have either been pulled-back or discarded based on concerns among some lawmakers that any change to the fund could increase in higher insurer reinsurance costs and homeowners premiums. As a result, at this point the prospects for reform are slim at best.
The House Regulatory Committee meeting this week revealed just how entrenched opposition to major Cat Fund reform has become.
Rep. Bill Hager (R-Boca Raton) offered a stripped-down version of his bill (HB 1107), which initially sought to lower the Cat Fund’s limit from $17 billion to $14 billion over three years.
When that faltered, Hager tried to offer a proposal to reduce the Cat Fund’s limited by $500 billion in the first year, $1 billion in the second and $1.5 billion in the third year.
Acknowledging that t there were not enough votes to pass either approach, Hagler was left to offer a proposal that just would reduce the Cat Fund’s limit from $17 billion to just $16.5 billion per storm season.
“I know how to count,” said Hagler, acknowledging the lack of support for his previous proposals. “This is just a baby step that is insufficient to solve the problem, but moves us in the right direction.”
Associated Industries of Florida representative Don Brown warned lawmakers that by failing to “right-size” the Cat Fund could place the entire property market at risk.
Even if the fund could issue the bonds to eventually pay insurers, he noted, it might be too late for some insurers that could go insolvent under the weight of having to pay so many claims.
“In the future we may look back at this moment and question whether we took this issue as seriously as we should have,” said Brown.
Another proposal in the bill that surprisingly drew lawmakers’ attention is one that extends medical malpractice insurers exemption from the Cat Fund’s emergency assessment base for another three years.
Currently, the Cat Fund’s emergency assessment base currently is $34 billion and assessments are levied on all property/ casualty lines of coverage excluding medical malpractice and workers’ compensation.
Lawmakers exempted medical malpractice insurers 10 years ago when the market was in turmoil as hospitals and healthcare providers faced higher rates and some insurers stopped providing coverage altogether.
Now, however, the medical malpractice crisis has abated and some lawmakers questioned whether that market still deserves special treatment. They said that given the worries over the Cat Fund’s finances, exempting medical malpractice is inconsistent with the bill that attempts to limit its obligation and yet removes up to $440 million in potential assessments.
“I don’t believe exempting it keeps medical malpractice rates down,” said Rep. Debbie Mayfield (R- Vero Beach). “Tort reform is what really keeps costs down, not waving their fees while everyone else pays.”
While House lawmakers are struggling to salvage some part of their proposed reforms, for the moment Senate lawmakers have also reach an impasse that threatens to end Cat Fund reform this year.
The Senate Banking and Insurance Committee this week approved a bill (SB1262) that in its original form mirrored the House’s initial proposal that would have reduced the Cat Fund’s financial obligations to insurers from $17 billion to $14 billion over a three-year period.
The bill also would have reduced the maximum reimbursement the fund owed individual insurers from 90 percent to 75 percent.
The proposal, however, quickly ran afoul of both Republican and Democratic senators who represent districts in south Florida and objected to the proposals.
Senator Alan Hays (R-Umatilla), the bill’s sponsor, initially tried to appease the opposition by reducing the Cat Fund’s obligation to $16 billion next year. However, that proposal failed to create a consensus on the committee.
Hays finally relented and accepted a change that in fact ran counter to the intent of his bill. Specifically, it would have actually expanded the Cat Fund by lowering the industry’s current retention rate from $7.5 billion to $5 billion.
In explaining his vote for the bill, a visibly irritated Hays said he was just trying to move the bill to its next committee and keep it alive for now.
“I’m just holding out hope there can be a potential compromise,” said Hays.