Bill Newton: Softening the blow of hurricane season
Published in The Tampa Tribune on May 30, 2015
Hurricane experts predicted Florida and the rest of the country should prepare for a slow 2015 Atlantic Hurricane Season, which starts Monday.
Colorado State University experts believe 2015 will bring seven named storms, including three hurricanes. It should be noted that in 1992, only four named storms transpired, one of which was Hurricane Andrew, which devastated South Florida and changed the state forever.
The point is, Florida should always be prepared for hurricanes as we live in the most hurricane-prone state in the country.
The historic nearly 10-year break from hurricanes is unprecedented and unlikely to continue. Managers of the state-backed Citizens Property Insurance Corp. and Florida Hurricane Catastrophe Fund have said an Andrew-esque storm or series of storms could wipe out the billions of dollars in reserves both funds enjoy.
The State Board of Administration should be commended for its action on April 14, when the trustees approved the Florida Hurricane Catastrophe Fund to purchase up to $1 billion in global reinsurance, another step that takes Florida’s inherent risk of being hit by a hurricane and spreads it to investors across the world instead of keeping it tied to everyday Floridians, small business owners, charities, churches and others.
The Cat Fund is the strongest it has ever been, with $14.8 billion to pay claims with reinsurance and pre-event bonding getting it to the $17 billion it is statutorily obligated to pay out. What is missed in that fact is that Hurricane Andrew caused $25.5 billion in damage in Florida, and Hurricane Wilma, the last storm to hit Florida in 2005, caused $16.8 billion in losses.
It is going to be very easy for those reserves to be wiped out.
When the Cat Fund bankrupts after paying back insurers after a storm, it then looks to every policyholder in Florida to which it can legally assess a tax that insurance policyholders must pay.
These hurricane taxes just ended in the past year and have generated $3 billion from Floridians’ pockets since 2005.
Anything that makes consumers vulnerable to unplanned taxes and a hit to their fiscal bottom line should be prevented.
Trustees’ actions, coupled with Citizens’ continued efforts to depopulate and move policies onto the private insurance market, are steps that protect Floridians.
The arguments against risk transfer ring hollow. Opponents believe that the Cat Fund purchasing reinsurance is a form of “corporate welfare.” But do consumers consider it welfare to purchase insurance for their everyday possessions? No, consumers purchase insurance as a way of spreading risk to a larger, wealthier base in order to ensure them or their possessions are covered in the event of a disaster.
Rarely is one required to buy renter’s insurance or supplemental health insurance, but it is done in order to manage risk. You may not need it, but if you do, you’re sure glad you have it.
If a person has no insurance coverage and disaster strikes, the only options a person may have is to dig into a savings account or borrow a limited amount of money.
Florida has the option of levying taxes on all Floridians, businesses and nonprofits.
Opponents of risk transfer want to leave everyone exposed to billions of dollars of hurricane assessments, while proponents of risk transfer believe reinsurance helps reduce the likelihood of these taxes being levied.
Thankfully, leaders have taken steps to prevent taxes from befalling Floridians as they continue to move risk onto the private market and beyond Florida into the global market.
When forecasters are showing us satellite imagery of a large hurricane moving toward Florida, the public should be prepared, but not wondering if they will be paying for new taxes for the next decade.
Risk transfer is a smart policy decision that protects Floridians and prepares the state for the upcoming hurricane season and beyond.
Bill Newton is executive director, Florida Consumer Action Network.