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Floridians will pay a 1 percent assessment on property and casualty insurance policies for a decade to repay a bond sale of up to $1.5 billion that was approved Wednesday to replenish the state’s Hurricane Insurance Catastrophe Fund.
The sale of tax-free bonds to cover losses from last year’s storms was unanimously authorized by the fund’s board of directors, which includes Gov. Jeb Bush, just a day before the start of the new hurricane season.
Consumers will save money despite the 1 percent assessment because insurance companies can expect to save about $2.5 billion by obtaining reinsurance from the fund instead of having to buy it on the open market, said Chief Financial Officer Tom Gallagher.
“That’s passed on to the consumers of this state,” said Gallagher, who serves on the five-member board with Bush, Attorney General Charlie Crist and two catastrophe fund staff members.
Gallagher estimated homeowners could save $400 to $500 per policy but perhaps what is more important it has helped maintain the availability of insurance coverage. He said Gulf Coast states struck by Hurricane Katrina last year are copying Florida because their insurers are bailing out.
“Without insurance you’re not going to get financing,” Bush said. “Without financing you’re going to see the economy at a standstill. Thank goodness we have the CAT fund.”
In a related development, Insurance Commissioner Kevin McCarty and state Sen. Steven Geller, D-Cooper City, announced they would present proposals for a national catastrophe fund to the National Conference of Insurance Legislators and National Association of Insurance Commissioners.
Geller chairs the legislative organization’s Subcommittee on National Disaster Insurance Legislation and McCarty chairs the commissioner group’s Property and Casualty Committee.
They hope the two groups will work together on the issue.
Florida officials, including Bush, have been pushing Congress to create such a fund as a backstop because the state version has been unable to keep up with losses from eight hurricanes in two years without the bonding bailout.
“The problem is that there are people in Congress (who) currently, at least, believe this is a parochial local issue, not a national problem,” Bush said. “I don’t want to wish another part of this country to have bad luck or to have a hurricane hit or whatever. It may take something like that to create a consensus.”
The governor said he has not talked to his brother, President Bush, but has discussed the matter with White House staffers. He said the administration is worried about the cost, but that the issue could be resolved by patterning the national fund after Florida’s.
No state money is used to support the state fund. It is paid for through assessments on all lines of insurance.
The plan that McCarty and Geller have proposed also would encourage the creation of other state or regional catastrophe funds.
The national fund would kick in only when losses to private insurers and the state and regional funds exceed $25 billion.
“When the big one happens, if we don’t have a plan in place, there will be chaos,” Geller said.
Although aligned with Geller on the cat fund issue, McCarty criticized a plan that Democrats in the Florida Legislature have proposed to hold down insurance premiums.
Their plan would have the state directly underwrite some of the risk for the property in the state that’s most likely to be hit, similar to the way the federal government insures for flood loss.
“I wouldn’t call it a plan,” he said. “I really think it’s an outline of some suggestions.”
One problem with the Democratic plan is that it is modeled after the National Flood Insurance Program, said McCarty, who is appointed by Bush and the Florida Cabinet, all Republicans.
“It’s a failed program,” McCarty said. “The rates are subsidized and who’s going to subsidize the rates in Florida. Florida can’t write off $23 billion debt, the federal government can.”