Fla. hurricane fund stronger, still fragile

Published On: May 31 2012 09:05:16 AM EDT
TALLAHASSEE, Fla. -

With hurricane season set to begin Friday, the acting head of the state-backed insurer is canvassing the state to bring residents up to speed.

Tom Grady, interim president of Citizens Property Insurance Corp., has scheduled a series of media interviews and meetings along the Southwest Gulf coast in advance of a hurricane summit scheduled for Friday in Tampa. The topic: How to depopulate the state's largest property insurer.

Grady's tour comes as Florida is in the best position since the devastating 2004 and 2005 hurricane seasons to weather a major storm. But officials remain wary over the fragile nature of government-backed programs set up to cover catastrophic losses and insure nearly 1.5 million residents who live in some of the riskiest areas of the state.

"The whole purpose of this is so we can agree on a set of facts, irrefutable facts, and see where we want to go," Grady said Wednesday after visits with media outlets in Naples, Fort Myers and Charlotte. "… It's surprising to me how few people realize that they are only making a down payment on their insurance. The full cost is much higher."

Meanwhile, the Florida Hurricane Catastrophe Fund could find itself about $1.8 billion short of its $17 billion obligation if it has to go to the bond market immediately following a devastating event, according to an analysis prepared by Raymond James for the state-backed re-insurer.

Added to nearly $7.4 billion in losses paid by private insurers before the CAT fund kicked in, available funds could adequately cover a 1-in-25 year storm, which would cause about $21.5 billion in losses. Assessments would be needed, insurance regulators say, to begin refilling the CAT fund.

Citizens, meanwhile, continues to add customers despite its announced goal of reducing the number of policies and turning those customers over to the private market. As it stands, the insurer faces billions in potential losses that could trigger assessments of up to 45 percent for policyholders, though such an increase would be politically difficult.

Coastal homeowners and a handful of lawmakers say many of Citizen's nearly 1.5 million policyholders couldn't afford the initial financial hit and have nowhere else to turn. Those fears have bubbled to the surface recently as Citizens board of governors meets to address proposed rate hikes for next year.

Insurance industry representatives say Citizens and the CAT fund are doing the best they can, but stress that the whole system is fragile. If a severe storm hits, Citizens funds will be exhausted and the CAT fund may find itself short. Both events would trigger assessments on most automobile and property insurance policyholders.

"It will take an awful, awful storm to trigger that," said Sam Miller, executive vice president for the Florida Insurance Council. "But if they do, they will fall short and would need to go to assessments.

To drive home the point, the state's insurance consumer advocate on Wednesday began a statewide campaign to educate Floridians on how much they may have to pay should a particularly devastating storm ravage the state.

For non-Citizens policyholders whose automobile and property insurance total $4,500, for example, the potential assessment on a 1-in-25 year storm would total up to $456, or $1,440 if paid out with interest over 30 years.

"It was clear that many Floridians (do) not recognize the potential for assessments following a storm if Citizens, the Florida Hurricane Catastrophe Fund or the Florida Insurance Guaranty Association does not have the capacity to pay claims,” said Robin Westcott, Florida's insurance consumer advocate.