Hurricane Catastrophe Fund reform could save $1 billion/yr

Insurance customers could reap benefits of new proposal

Florida home insurance customers could get a substantial break from rising rates — saving about $150 a year — if they no longer had to pay into the state’s hurricane insurance reserve fund and if insurance companies could access those reserves more easily — with fewer overall claims losses.

Reforms proposed in the state Legislature on Thursday by state Sen. Jeff Brandes, a Pinellas County Republican, could save Florida consumers $750 million to $1 billion a year in insurance costs, he said.

The savings would come from two major reforms to the Florida Hurricane Catastrophe Fund (CAT Fund), which sells reinsurance — which is insurance that insurers must buy to guarantee they can pay claims after a major hurricane or other catastrophe.

The CAT Fund has accumulated $11.3 billion in cash reserves and has an additional $3.5 billion in bond funding. Some of that money should be used to reduce spiraling costs for Florida home insurance customers, proponents argued in a Senate Judiciary Committee hearing last week.

Supporters say the reforms would: Reduce the level of losses that insurance companies in Florida must suffer before they can access the CAT Fund from $8.2 billion to $4.5 billion. Each insurance company has its own separate threshold of losses that must be met before seeking money from the CAT Fund. Think of this number as you would your own deductible. It’s based on each company’s policy count, value of insured property, and exposure to risks. All of those deductibles collectively add up to what’s called the aggregate retention point, which is what Brandes is proposing should be reduced. Lowering that level would make required reinsurance coverage available at a lower price to private market insurers because, unlike private market reinsurers, the CAT Fund is tax exempt and not allowed to make a profit. Most private market reinsurers are located in Bermuda or other foreign countries. Enabling insurers to buy more reinsurance from the CAT Fund would keep more money in Florida, Brandes said.

Suspend an insurance policy tax that all property owners pay as part of their coverage costs. The tax is called the Rapid Cash Buildup Factor, and it raises more than $300 million a year that helps the CAT Fund grow. Reform supporters say the Fund earns enough money each year from its sales of reinsurance.