Florida's Hurricane Fund Going Broke
Florida homeowners, already cash-strapped by expensive home insurance, now face the strong possibility of having to patch a hole in the state's hurricane catastrophe (CAT) fund. The senior officer of the Florida Hurricane Catastrophe Fund announced that insurers will take about $6.9 billion from the fund, leaving it empty and "starting off 2006 at zero." It is the first time the catastrophe fund's cash has dwindled this low since the fund was created more than a decade ago after Hurricane Andrew in 1992. The state fund provides affordable reinsurance coverage—insurance for insurance companies—to reduce the amount they pay in property damage claims after big storms. Insurance firms pay into the fund annually and in turn can take money out when a company's storm losses exceed $4.5 billion. Insurers didn't tap significant amounts from the fund until the 2004 storm season, allowing time to build a cash cushion. Insurance experts and observers have been expecting the fund to be drained since Hurricane Wilma hit Florida in October. Now the fund must be replenished, and one way or another Floridians will end up footing the bill. The fund's board can 1) make everyone with auto, home and business policies pay 6 percent interest of annual premiums, or $60 per $1,000 of premiums paid up to $15 billion in bonds sold for the fund, 2) make insurance companies pay more money into the fund this year, then pass the extra costs on to customers. Either action would require approval from the State Board of Administration, which is the governor, and the state's chief financial officer and attorney general.