The state catastrophe fund that pays damage claims when home insurers cannot is “leaning against” buying additional backup coverage for itself, because the cost would outweigh the need, Florida’s chief financial officer said Monday.
The extra reinsurance for the Hurricane Catastrophe Fund would cost about $600 million, and buying it would leave less money available to pay claims for smaller storms, Chief Financial Officer Alex Sink said. She said that is why the state is unlikely to buy it.
“I think it would be something that would be, maybe, nice to have to protect ourselves against a big, bad one but … we don’t need it in order to maintain the financial well-being of our state,” Sink said in an interview.
Financial companies have approached the state about the extra insurance, which would reportedly cover about $6 billion in damages.
“At the current moment it appears that it would be very, very expensive for us to purchase this kind of reinsurance for a storm event that only has a 2 percent chance of occurring,” Sink said.
Another problem with buying the extra coverage is that the so-called CAT fund could be largely depleted from claims, but not enough to have reinsurance kick in, Sink said.
If the fund were to come up short and be unable to pay claims, the difference would be paid for with assessments on several types of insurance policies, including homeowners and auto coverage.
The fund also could be tapped if it did not have enough to pay for the backup coverage it provides to private companies. Lawmakers earlier this year expanded the fund to provide that insurance, which is expected to cut costs for customers.
It was one of several changes the Legislature made in an effort to put a dent in the burgeoning cost of insuring a home against hurricane damage, especially after the active 2004 and 2005 storm seasons.
The fund’s exposure before the law change would have been from $6 billion to $16 billion, but now it is up to $28 billion.
“I’m always looking at decisions we make that won’t bankrupt our state and at the $28 billion level our experts are telling us that they can see our way clear to being able to issue bonds in the event of a storm so that we can pay our claims,” she said.
Associated Press Reporter Jon Manson-Hing contributed to this report.
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