The 2017 hurricane season starts June 1 and Florida will enter the new season in the best financial situation ever as far as the insurance market goes.
That’s the word from the head of the State Board of Administration which oversees Florida’s Hurricane Catastrophe Fund.
The so-called Cat Fund is designed to help private insurers pay claims in the event that a major hurricane hits Florida.
SBA Executive Director Ash Williams told Gov. Rick Scott and members of the Florida Cabinet on Tuesday that the state escaped major damage during the 2016 hurricane season despite a close call from Hurricane Matthew and minimal damage from Hurricane Hermine. Williams says that “means we come into the current season in the strongest financial position we’ve ever been in.”
That’s good news for Floridians who can be hit with a surcharge on most insurance policies when the Cat Fund is depleted.
“When the Cat Fund ran short of money in the unprecedented series of storms from 2004 and 2005, all policyholders paid a tax on their home, auto and business insurance policies to make up for the shortfall – a payback period that lasted about a decade,” said Lynne McChristian, the Florida representative for the Insurance Information Institute. “Taking proactive steps so a scenario like that does not play out again is simply good sense.”
The state has $17.6 billion available to the Cat Fund, more than the $17 billion dollar maximum liability the fund would face in the event of a major storm. The fund has grown largely due to the fact Florida has been spared from hurricanes over the past decade.
“The Cat Fund is healthy, and that is due both to good luck in the absence of major storms and good planning by the Fund’s administrators,” added McChristian. “As long-time Floridians know, it only takes one big storm to throw everything out of whack.”
She points to Hurricane Andrew which devastated South Florida in 1992 and caused $15 billion in damages. The damage caused by Andrew would equate to $26 billion in 2016 dollars.
Despite the strong financial footing of the Cat Fund, Williams is recommending the state strengthen its position even more by acquiring another $1 billion in private reinsurance. He says purchasing additional reinsurance would help safeguard the state from losses from major storms that could occur in the next year or two.
The state has purchased an additional $1 billion in reinsurance in each of the last two years and Williams says it’s wise to be prepared.
“Just like life insurance. You don’t feel bad if you didn’t die in a given year,” Williams told the governor and Cabinet. “You don’t feel bad if your house didn’t burn down and you paid a premium on fire insurance.”
McChristian points out that while it’s important that Florida’s Cat Fund is in good financial shape, private insurers don’t rely on the fund alone as a course of reinsurance. She said insurance companies usually have multiple sources of reinsurance in the event a major storm or a series of storms were to hit the state.