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Apr 16

Reinsurance bad deal for Florida homeowners By Ray Rodrigues April 14, 2015

On Tuesday, executives from the Florida Hurricane Catastrophe Fund recommended to the state Board of Administration, consisting of Gov. Rick Scott, Chief Financial Officer Jeff Atwater and Attorney General Pam Bondi, that they approve the purchase of billions of dollars of reinsurance from the private market. I believe the proposed risk transfer is a violation of state law and urge the board to say no.

The Florida Hurricane Catastrophe Fund was created in November 1993 during a special legislative session after Hurricane Andrew. The purpose of the fund is to protect and advance the state’s interest in maintaining insurance capacity in Florida by providing reimbursements to insurers for a portion of their catastrophic hurricane losses. The fund has proven to be a successful mechanism for moderating property insurance rates by providing alternative reinsurance that would otherwise have to be purchased from the private global reinsurance market.

The capacity of the fund is set by statute and is currently $17 billion. Since I was elected to the Legislature in 2012, there have been a number of bills, none successful, that would lower that capacity and force carriers to buy more expensive coverage from the private reinsurance market, which would raise homeowner’s insurance rates. Now fund advisers are asking the board to illegally sidestep the prerogatives of the state Legislature by effectively lowering the fund’s capacity.

This proposal not only violates statute, but is also a bad deal for Florida. Industry representatives and consumer groups agree that the proposed risk transfer has already moved rates up. By some estimates the average rate payer would get a $66 increase at their next renewal. This might make financial sense if it were to avoid serious risk in the future but it does not. The risk of private reinsurers having to pay is so unlikely that some have called it “phantom risk.” Fund managers are asking insurance consumers to pay the $66 this year to avoid a less than 1 percent chance of having to pay about $8 bucks in hurricane taxes later. The only people who would win if this proposal is approved are the Bermuda reinsurers and their brokers. One of my colleagues even labeled it “corporate welfare.”

I believe that our state leadership is smarter than that and will shut down this unwise and illegal proposal not only this year but also in the future. There are still six weeks until hurricane season starts, plenty of time for markets to restabilize and avoid this unnecessary rate increase.

Ray Rodrigues is a state representative from Estero.