As the 2008 Atlantic hurricane season officially comes to a close this on Nov. 30, Florida can be thankful for being spared from any major hurricane strike again this season.
However, the dangers hurricanes present and the financial ramifications facing all Florida taxpayers — even those not impacted by a storm — remain quite serious, insurance companies are reminding the public.
“Just because Florida was spared does not mean that hurricane activity is down; the fact is we remain in the middle of a 20-year cycle for increased hurricane activity,” said Sam Miller, executive vice president of the Florida Insurance Council, which represents 64 insurers.
“There were 16 named storms this year. All but one hit other areas of the United States or close neighboring countries like Haiti and Cuba, making for a very active season,” Miller said. “An average hurricane season is one with about nine named storms. We had just under twice as many named storms as an average season.”
Tropical Storm Fay made landfall in Florida on four separate occasions from August 18 through the 24th and dumped heavy rains on all parts of the state. According to the Office of Insurance Regulation, Fay produced more than 41,000 claims and more than $246 million in insured damages. The highest number of claims were filed in Brevard, Duval and Orange counties. Fay was the most significant tropical storm event in Florida in years.
Miller warns that while the immediate danger may have passed, the 2009 season is not far away and as it stands now, the Florida Hurricane Catastrophe Fund (Cat Fund) – a major piece of the overall means of paying for the financial damages caused by hurricanes – remains unable to meet its full financial obligations.
The current Cat Fund’s obligation is about $28 billion, most of which is dependent upon its ability to sell bonds. The chaos on Wall Street, however, has cut deeply into the fund’s bonding capacity. The State Board of Administration’s recent estimate of the Cat Fund’s bonding capacity notes a shortfall of $10 to $15 billion.
The Senate Banking and Insurance Committee released a report a few weeks ago in which it suggests the Legislature may need to consider alternative funding mechanisms for the Cat Fund given the uncertainty in the financial markets.
Even if the problems in the financial markets were to clear up overnight and the Cat Fund were to bond to its full capacity, all Florida taxpayers– those affected by a hurricane and those in areas unaffected by a storm– would be at risk of huge tax increases to pay off those bonds, according to Miller.
He said the Legislature must establish a realistic exposure level for our Florida’s Cat Fund. In all likelihood, achieving a realistic level will mean reducing the Fund’s exposure to $16.5 billion, the basic program minus the $12 billion expansion approved in the January 2007 special session. It might even include reverting to $11 billion, Cat Fund capacity prior to expansion of the basic program in 2004, according to Miller.
The industry argues that reducing the exposure level would prompt all insurance companies- including the government-run Citizens Property Insurance Co. – to purchase the upper limits of their reinsurance on the private global market. Then policy makers must allow the insurers to include all costs of their reinsurance program in their rates, Miller added.
Source: Florida Insurance Council
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