House panel looks to shore up Catastrophe Fund, ease assessments

The following article was published in The Florida Current on January 17, 2012:

House plan looks to shore up Cat Fund, ease assessments

By Gray Rohrer

Florida’s insurance market has two sick children: the Florida Hurricane Catastrophe Fund, or Cat Fund, and Citizens Property Insurance Corp.

That was the consensus Tuesday in the House Insurance and Banking Subcommittee, but lawmakers disagreed about how best to prescribe a cure.

Jack Nicholson, the chief operating officer of the Cat Fund, suggested many of the provisions in HB 833, which would shrink the size of the state-backed reinsurance fund from $17 billion to $12 billion and increase the amount of co-pays insurance companies pay into the fund. He likened the fund to a sick child and said the changes are necessary because of the Cat Fund’s potential $3.2 billion shortfall should a catastrophic storm hit the state, even though a major storm hasn’t hit the state for several years.

“You can’t expect to roll the dice and be lucky every time. We’ve been lucky for the last six years. Our luck is going to eventually run out,” Nicholson said.

But Rep. John Wood, R-Winter Haven, thought the proposal would push private companies to buy more reinsurance from the more expensive private reinsurance market and pass the costs on to consumers. That would, he speculated, push more customers into state-backed Citizens, which has an annual rate increase cap of 10 percent, unlike the private sector.

“I think we’ve got to realize we’ve got another sick child, and that is Citizens. Are we going to in effect drive business into Citizens and make that child even sicker?” Wood said.

Lawmakers frequently state the need to reduce Citizens’ 1.47 million policy count and bring in more private companies to help handle Florida’s property insurance. Rep. Ben Albritton, R-Wauchula, is proposing HB 1127, which would all but eliminate regular assessments on non-Citizens policies, pushing them instead into the emergency assessments charged after a catastrophic storm.

Emergency assessments, which are charged to Citizens and non-Citizens policies alike, can be gathered by private companies over a longer period of time than regular assessments, which are charged only to non-Citizens policies and are due within 90 days. Proponents of the bill argue that large private companies are scared off by the prospect of a large hit to their balance sheet that would go to a state-backed competitor, and smaller companies already doing business in Florida could go bankrupt after a storm because of the regular assessments.

“There may be some carriers who have a very difficult time coming up with immediate cash flow to pay a Citizens assessment should they have to,” said Monty Stevens, a lobbyist for the Office of Insurance Regulation. “One of the barriers to entry [to the Florida market] that we hear is that companies do not want to be on the hook for that immediate infusion of cash to Citizens that may be required.”

Albritton withheld judgment as to whether HB 833 would work to counteract his bill to bring in more private capital, instead of relying on Citizens.

“I think it is yet to be seen at this point,” he said.

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