Florida Senate Passes Bill to Reduce Insurers’ Catastrophe Coverage Limits
Mar 27, 2008
Insurance Journal--Mar. 27, 2008
By Brian Kern
Legislation passed by the Florida Senate this week would reduce the amount of state-funded reinsurance that insurers can purchase under the temporary increase in coverage limit (TICL) program.
The Senate bill would reduce the amount of optional TICL coverage offered by the state by eliminating coverage options of $10 billion, $11 billion and $12 billion, so that a maximum of $9 billion in coverage will be offered in addition to the mandatory Florida Hurricane Catastrophe Fund coverage (Cat Fund).
Additionally, under the Senate bill, the TICL option is changed to reimburse only 70 percent of the insurer’s losses within the TICL layer purchased versus the current law which permits insurers to purchase coverage that reimburses 45 percent, 75 percent or 90 percent of the insurer’s losses. The vast majority of insurers elect the 90 percent option, according the bill’s summary.
Created in 1993 after Hurricane Andrew hit South Florida, the Cat Fund is a tax-exempt state trust fund that reimburses insurers for a portion of their hurricane losses to residential property. In 2007, House Bill 1A increased the coverage limits of the CAT Fund for the 2007, 2008 and 2009 hurricane seasons by adding the temporary coverage limit options that allow an insurer to purchase its share of up to $12 billion in coverage, in $1 billion increments, above the mandatory Cat Fund coverage (which was $15.85 billion above a $6.1 billion retention for the 2007 hurricane season).
The state mandate requires all insurers that write residential property insurance in Florida to buy reimbursement coverage (reinsurance) on their residential property exposure through the Cat Fund. Administered by the State Board of Administration the Cat Fund is a tax-exempt source of reimbursement to property insurers for a selected percentage of hurricane losses above the insurer’s deductible. The fund provides insurers an additional source of reinsurance to compete with the private market, the theory being that it will enable insurers to generally write more residential property insurance in the state than would otherwise be written.
Florida Chief Financial Officer Alex Sink applauded the Florida Senate Banking & Insurance Committee for unanimously passing Senate Bill 2156 which would ultimately reduces the amount of exposure Florida’s consumers have to hurricanes.
“I thank Sen. Posey and his Senate colleagues for their leadership and support of this bipartisan proposal to reduce the risk of hurricane assessments on Floridians and businesses,” Sink said. “With their support, we are eliminating the risk of $5.5 billion in hurricane assessments if we have a bad storm this year.”
The companion bill is HB 7021, sponsored by State Representative Ron Reagan, R-Sarasota/Bradenton.
Sam Miller of the Florida Insurance Council said his organization’s property committee believes it is clear the Cat Fund cannot timely raise the $28 billion in total funding and $12 billion in the complete TICL layer because of a crisis in the financial markets and the national economy generally.
The FIC committee noted during a recent conference call that this view was formally expressed by the Cat Fund Advisory Council, according to Miller.
FIC believes that the Legislature should examine what is an appropriate, achievable level for the Cat Fund, while providing that private insurers can recover their costs for private reinsurance around their Cat Fund coverage.
“With respect to proposals that impact the Florida Hurricane Catastrophe Fund, FIC members should have the ability to pass along any additional costs reflected in these changes,” the FIC committee said.
Sources: Florida Senate
Florida Insurance Council