Florida Bill Would Drop Collective Deductible, But Would Incur Long-Range Costs for Consumers

March 17, 2005

A bill that is moving through the Florida House of Representatives could leave consumers and businesses with a hefty bill if the Florida Hurricane Catastrophe Fund is wiped out after a major hurricane.

The proposed legislation, which unanimously cleared the House Insurance Committee last week, would lower the deductible for homeowners’ insurance companies before they can tap the reinsurance protection they buy from the CAT Fund.

The lower deductible means the CAT Fund, which was created in 1993 as a vehicle to provide less expensive reinsurance for Florida insurance companies, would pay more to cover losses for insurers.

The bill would drop the collective industry deductible to $4 billion from the $4.9 billion now in place for 2005 for the first two storms during a hurricane season. If there were a third and fourth storm, the deductible would fall to $1.3 billion per storm.

“I’m very concerned,” Rep. Dennis Ross, R-Lakeland, told the Bradenton Herald, about the impact of the bill, even though he voted for it and chairs the Insurance Committee.

Ross is aware that lowering the deductibles could hike the ultimate cost of insurance for consumers. The CAT Fund currently has $3.8 billion in cash. It has the authority to sell bonds to raise up to $15 billion.

If the CAT Fund runs out of cash, the state would issue bonds to make up the difference.

The tab could last up to 30 years, depending on the maturity of the bonds, and could add between 6 percent and 10 percent to holders of every property/casualty policy throughout the state. That means payments for the bonds would be covered by homeowners, auto owners, businesses and even nonprofit organizations. Only workers’ comp and medical malpractice policyholders would be exempt.

“It’s a very short-sighted solution,” said James Massie, a lobbyist for the Reinsurance Association of America. “These kinds of assessments are actually taxes.”

Proponents of this measure argue that a lower deductible frees insurers’ capital, allowing companies to keep their current Florida policies and possibly even expand them.

The CAT Fund will pay at least $2.6 billion to insurance companies for 2004 losses. There were nearly 100 insurers whose claim losses weren’t high enough to tap the CAT Fund last year.

Despite being the second-largest insurer in the state and facing about $1.8 billion hurricane claims, Citizens Property Insurance, the state-run insurer of last resort, also didn’t meet the threshold to use its CAT Fund reinsurance for any of the storms that hit Florida last year.

Topics Carriers Florida Hurricane Reinsurance

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