TBO.com - TBO is Tampa Bay Online

Make Insurance Companies Share The Risk

ADVERTISEMENT

The Tampa Tribune

Published: February 20, 2008

Right now, every Florida homeowner, automobile owner and business owner is liable for "hidden taxes" in the form of assessments from Florida's Hurricane Catastrophe (CAT) Fund. The risk we face results from an attempt by the state to reduce homeowners' insurance during the insurance rate crisis following the 2004 and 2005 hurricane seasons.

In 2007, the state increased the amount of reinsurance we sell though the Cat Fund to private insurance companies by $12 billion. Florida's Cat Fund sells discounted reinsurance to private insurance companies looking to back up their homeowners' insurance exposure. Last year's expansion was predicted to lower homeowners' insurance premiums by a an average of 24 percent.

We have not benefited from this bargain. Most of us have not received significant savings on our insurance policies, and yet we are still holding the risk. Floridians with insurance policies on our homes, apartments, cars, boats or businesses are at risk for thousands of dollars in assessments when the next hurricane causes billions in damages.

If a Category Three hurricane strikes Tampa Bay or South Florida this summer, it could easily cause $35 billion in damages. This kind of storm would force the state to issue $28 billion in bonds to raise enough money to pay homeowners' claims. And to pay for these bonds, the state assesses Floridians' insurance policies. Look at your current insurance statement; you'll find you're already paying assessments to cover a fraction of the damage we are currently liable for.

Volatility in the world financial markets already has hampered Florida's ability to raise capital in the bond markets. I am very concerned about our ability to sell bonds of this magnitude at a reasonable price and I am not alone. The Cat Fund's Advisory Council last month expressed "concern" about the "realistic potential to adequately fund" our increased insurance risk.

As Florida's chief financial officer, and your fiscal watchdog, I know that risk without reward just doesn't make good business sense for our state - and it doesn't make good financial sense for Florida's families. We have a real opportunity to act now, as the private market is well-positioned to take a portion of this risk. That's why I am working with Florida's legislators in an effort to take some of this risk off the backs of Floridians.

My proposal increases the amount of co-insurance that an insurance company must have to obtain discounted reinsurance through our Cat Fund. This measure would reduce our current risk exposure by $3 billion. While this is a small part of the extra risk we assumed last year, it does represent a first step without a significant impact on rates. This plan would save Floridians from paying yearly assessments of as much as $176 million per year for 30 years when hurricanes return to our state's coastlines. That's a tax savings for Floridians up to $5.3 billion.

Reducing the risk facing Floridians - and in turn, reducing exorbitant assessments - is one solution that makes good business sense. I encourage you to contact your local legislators and ask them to support this proposal.

Alex Sink is Florida's chief financial officer.

Share this:

Loading Comments...

Email Print

ADVERTISEMENT