Hurricane season officially starts June 1 and Florida is prepared. The 2017 hurricane season lasts through Nov. 30.The Florida Hurricane Catastrophe Fund – an insurance company for insurers that kicks in if damage claims grow too high – is in its strongest financial position ever. But state officials may bolster the fund even more with a purchase of $1 billion in private reinsurance.
"We had a sobering reminder last year of the perils that Florida faces every year," Ash Williams, executive director of the State Board of Administration, told Gov. Rick Scott and the Cabinet a few weeks ago.With relatively minimal damage from Hurricane Hermine and a glancing blow from the more-powerful Hurricane Matthew in 2016, Williams said the so-called "Cat Fund" (Florida Hurricane Catastrophe Fund) was largely untapped last year, "which means we come into the current season in the strongest financial position we've ever been in."The Cat Fund has $14.9 billion in cash, with an additional $2.7 billion in funding from "pre-event" bonds. With a total of $17.6 billion, it has more than enough money to pay its potential $17 billion maximum liability.The fund has grown because it has been able to collect premiums from private insurance companies, which rely on its backup insurance, for more than a decade without having to make a major payout.Given the current funding, Williams said one option would be to "do nothing" about bolstering the Cat Fund, though that brings a certain amount of risk without knowing whether storms will hit the state this year.
"You won't really know whether what you have done is the right thing until the subsequent season," Williams said. However, if Florida is hit by a major hurricane or series of storms, "you would feel awfully good" about having more financial protections in place, Williams told Scott and the Cabinet.The key option would be buying $1 billion in reinsurance, which would be triggered if storm losses exceeded $10.5 billion. The option would cost approximately $68 million.Williams said coverage could be purchased without impacting the overall reinsurance market. Private insurers typically buy private reinsurance, along with getting backup coverage from the Cat Fund. He also said the coverage could likely be purchased at a lower rate than last year and would provide "equal or better terms" for the state. "Capacity has continued to be ample, and prices have continued to fall," Williams said about the reinsurance market.Florida has purchased $1 billion in reinsurance for the Cat Fund the past two hurricane seasons.
The financial health of the Cat Fund is important because the state can impose a surcharge on most insurance policies, including auto insurance, if the funding is depleted. That happened after the 2004 and 2005 hurricane seasons, with consumers paying a surcharge, also known as a "hurricane tax," through 2015.Florida hurricane sales tax holidayEven though hurricanes Hermine and Matthew didn't cause massive damage to Florida last year, retail stores ran out of batteries, water, propane and other storm provisions as they neared the coastline. The Florida sales tax holiday, which runs from Friday through Sunday (June 2-4), not only saves Floridians money, but it prompts residents to stock up on hurricane supplies earlier rather than later.The Florida Department of Financial Services also offers an online hurricane prep toolkit in PDF form. It includes an insurance checklist that includes adjuster contacts and emergency service contacts, such as the Red Cross, FEMA and the Department's consumer helpline, as well as a log of calls made to insurance companies about claims.
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