Report: Florida One Major Hurricane Away from Financial Crisis

A new analysis by Florida TaxWatch reveals that Florida faces a property insurance crisis. In a new special report, Florida’s Financial Exposure of Its “Self-Insurance” Programs: The Citizens Property Insurance Corporation and the Florida Hurricane Catastrophe Fund, Florida TaxWatch provides in-depth analysis of the fiscal future and solvency of the state’s insurance programs.

“This analysis shows that Florida may be one major hurricane hit away from depending upon Federal relief or facing financial crisis,” said Dominic Calabro, President and CEO of Florida TaxWatch.

According to the report, the Florida Hurricane Catastrophe Fund’s estimated capacity for the 2009-10 is $16 billion, to be funded with $8 billion of liquid resources (cash of $4.5 billion and $3.5 billion of pre-event notes) and $8 billion of estimated post-event bonding. The estimated potential shortfall is $7.173 billion. While large, this number is far smaller than the $18.5 billion potential shortfall in 2009. The analysis shows that repaying the bonds needed to finance the shortfalls would cost Florida almost $4 billion annually, resulting in a loss of more than 70,000 jobs.

“Florida TaxWatch independent analysis unequivocally shows that our current property and causality insurance system leaves the state and the taxpayers vulnerable to an economic disaster,” said Representative David Murzin, Chair Economic Development & Community Affairs Policy Council at the event announcing the release of the report. “Should a major storm hit, Florida will be forced to borrow tens-of- billion of dollars – more money than any state has ever borrowed – and the interest payments alone will suck billions of dollars out of the state for decades to come. With hurricane season approaching and the legislative session coming to a close, we [the Legislature] must reduce the state’s potential crippling financial exposure through Citizens Property Insurance Corporation and the Florida Hurricane Catastrophe Fund by reforming the state’s insurance system,” added Representative Murzin.

In 2009, both Citizens and the Florida Hurricane Catastrophe Fund faced enormous potential shortfalls, despite the absence of 2006-08 landfalling storms, because of artificially low premiums. Despite reserves built from a lack of major storm activity recently, there would be significant shortfalls to pay claims in 2010 if a major storm strikes Florida.

“Low-cost insurance may be the most expensive kind someone can buy, especially if the claim cannot be paid,” added Representative Bill Proctor at the release event in the Capitol today.

Citizens and the Florida Hurricane Catastrophe Fund also have a substantial impact upon Florida’s business climate, even when no storms hit Florida. The possibility of assessments discourages businesses’ investment in the state and encourages in-state businesses to diminish or cease their activities.
Additional steps to encourage wind-loss mitigation programs and to return Citizens to the original role as an insurer of last resort are needed.

In its special report, Florida TaxWatch has made recommendations to make Citizens and the Florida Hurricane Catastrophe Fund more financially viable. Among them are:

• requiring Citizens to serve as Florida’s insurer of last resort and for their rates to be actuarially sound;

• raising awareness of potential assessments by requiring Citizens and the FHCF to publish estimated assessments for a 1-in-100 year storm each year;

• supporting programs that encourage homeowners to strengthen their homes to better withstand high winds, and,

• prohibiting Citizens from insuring new structures in high-risk coastal areas.

Without such measures, Citizens and the Florida Hurricane Catastrophe Fund risk multi-billion dollar shortfalls, which could bankrupt the state with just one hurricane. With this possibility, it is imperative that Florida take the necessary steps to protect itself from the danger of insolvency in the state’s property and casualty insurance.