Heartland Institute Responds to Reform Plan for Florida Cat Fund

Published December 5, 2011

The Heartland Institute’s Center on Finance, Insurance, and Real Estate welcomed the introduction of legislation in Florida’s House of Representatives to address the dangerously overexposed condition of the Florida Hurricane Catastrophe Fund.

Sponsored by state Rep. Bill Hager (R-Boca Raton), H.B. 833 closely tracks reforms previously proposed by Jack Nicholson, the Cat Fund’s chief operating officer. Among the reforms included in the legislation are:

  • Terminating the fund’s temporary increase in coverage limits option at the end of the 2011–2012 contract year;
  • Gradually reducing the fund’s mandatory coverage layer, from $17 billion in the 2012–2013 contract year to $15.5 billion in 2013–2014, $14 billion in 2014–2015, and $12 billion in 2015–2016;
  • Gradually reducing maximum available percentage coverage to participating insurers from 90 percent in 2012–2013 to 85 percent in 2013–2014, 80 percent in 2014–2015, and 75 percent in 2015–2016;
  • Increasing industry retention from the current $4.5 billion to $8 billion in the 2013–2014 contract year, and tying automatic increases in future years to growth of the fund’s exposure;
  • Increasing cash build-up by five percentage points each year until the 2018–2019 contract year, when the build-up factor would reach 50 percent; and
  • Reducing the maximum annual emergency assessment cap from the current 6 percent to 5 percent beginning in the 2015–2016 contract year and the aggregate assessment for losses from all years from the current 10 percent to 8 percent.

The following statements from insurance experts at The Heartland Institute – a free-market think tank with an office in Tallahassee – may be used for attribution. For more comments, refer to the contact information below. To book a Heartland guest on your program, please contact Tammy Nash at [email protected] and 312/377-4000. After regular business hours, contact Jim Lakely at [email protected] and 312/731-9364.

“The Florida Hurricane Catastrophe Fund has $18.4 billion of liabilities this year, and the fund’s own management concedes that its funding structure would leave it billions short of its obligations should a major storm hit the Sunshine State. State lawmakers already have a host of bills to address in their January legislative session, but that is no excuse to ignore this clear and present threat to both taxpayers and policyholders.

“The time is now to get serious about private-sector solutions that promote real risk-based rates in Florida’s property insurance market and the spread of that risk through the global reinsurance market.”

R.J. Lehman
Deputy Director, Center on Finance, Insurance, and Real Estate
The Heartland Institute
[email protected]

“This week ended Florida’s sixth storm-free hurricane season, marking one of the longest periods the state has gone without being struck by a tropical cyclone. Had Floridians been less fortunate this year, they would have soon found out how broken their property insurance system is. Rep. Hager’s Cat Fund reform bill addresses one major component of that broken system so that Florida no longer has to rely on Mother Nature’s good graces.

“This bill goes a long way in strengthening the Cat Fund to reduce or eliminate the possibility of the fund going broke after a storm and being bailed out by massive post-hurricane taxes. The legislature should treat this as the very serious issue that it is, carefully consider Rep. Hager’s proposals, and enact reforms to safeguard Florida’s economic future before the state’s streak of good luck runs out.”

Christian Cámara
Director, Florida Insurance Project
The Heartland Institute
[email protected]

The Heartland Institute is a 27-year-old national nonprofit organization with offices in Chicago, Illinois; Washington, DC; Austin, Texas; Tallahassee, Florida; and Columbus, Ohio. Its mission is to discover, develop, and promote free-market solutions to social and economic problems. For more information, visit our Web site or call 312/377-4000.