Two Florida lawmakers, Sen. Bill Nelson (D-Fla.) and U.S. Rep. Mark Foley (R-Fla.) have voiced their support for a national catastrophe fund that insurance companies would establish to provide extra funding in the event of catastrophe’s such as Hurricane Katrina.
In Tallahassee on Wednesday, Nelson told the Economic Club of Florida that as a member of the Senate Commerce Committee, he has pushed such a bill “for years” and now that Hurricane Kartina has proven the need for a CAT fund, he plans to promote the idea.
“I’ve been telling my colleagues sooner or later we would face a catastrophe unfathomable in financial terms and the insurance companies would not be able to bear it,” Foley, told the Gainesville Sun. “This is the gut-wrenching experience people are going to have to see to finally get some attention” for his bill.
A catastrophe fund would provide insurance companies with incentives to encourage them to deposit money in the fund for catastrophes. They could deposit tax-free money into the account, and would be penalized and taxed it they withdrew it for anything but a catastrophe.
Florida set up a similar catastrophe fund after Hurricane Andrew in 1992, which was the country’s most expensive disaster with $21 billion in insured losses, adjusted for inflation. Insured losses from Katrina are predicted to top $25 billion.
In Florida, the Hurricane Catastrophe Fund serves as a backup account for companies with large losses. Insurers operating in Florida pay into the fund, and they can access it when they have losses above a certain amount.
Nelson, who helped establish Florida’s fund as the state’s Insurance Commissioner, said the federal program would work differently in that each company would have its own account.
“Instead of a setting up another gargantuan bureaucracy and replicating what we do here in Florida, (I’m going) to see if we can’t use the tax code to change it to give insurance companies the incentive to reserve for catastrophes,” Nelson told the Sun.
The idea is something the insurance company has supported for years, but one that hasn’t caught on with Washington lawmakers.
“I thought last year there would have been a debate over this after the four hurricanes we experienced,” Don Griffin, a vice president with Property Casualty Insurers Association of America said.
But he, Nelson and Foley said people may have seen hurricanes as a Florida problem–until now.
“It can be a national problem, as we’re seeing evidenced today,” said Griffin, adding that the funds could also help after earthquakes, floods or other disasters. “There’s a lot of other catastrophes that certainly we’re dealing with these days that could point to the need to explore a national solution.”
Nelson said that he talked with Gulf state officials after Andrew about setting up a regional fund, but they didn’t want to listen. The idea still could be worth thinking about he said.
“We proposed this when I was insurance commissioner, but you couldn’t get the Alabama Legislature and the governor to pay any attention. Same with Mississippi, same with Texas and Louisiana,” Nelson said.
“We had to do our own thing because Florida happened to be hit with Andrew,” Nelson said. “Well, maybe they’ll think differently now.”
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