Florida Legislative Session: The Past, the Present, the Insurance Dilemma

March 04, 2011

Guest Blog by Christian Camera of The Heartland Institute

We need your help to eliminate or reduce a hidden “hurricane tax” that afflicts all Floridians, and even impacts our churches and charities.

For the past four years, business and charitable organizations throughout Florida have worked tirelessly on behalf of all Floridians championing to return Citizens Property Insurance Corporation to its original role as the state insurer of last resort and the Florida Hurricane Catastrophe Fund (Cat Fund) to its original mission of providing stability for huge hurricane events. While there has been some forward progress in the past, Citizens and the Cat Fund are exempt from capital and solvency requirements and are primarily dependent on issuing debt to pay claims after hurricanes hit Florida. To service this debt, hurricane taxes are levied on the insurance premiums of Florida businesses, charities, schools, churches, renters and automobile policyholders across the state. These state-run entities are taxing everyone including you – just look at your insurance bill!

Both the Florida Office of Insurance Regulation (OIR) and Florida TaxWatch have developed reports which specify the financial burden Floridians will be faced with in the worst case scenario. Some of us were subjected first-hand to the destruction caused by Hurricane Andrew, and we are all aware of the devastation Hurricane Katrina brought to New Orleans. These are just two examples of unfathomable storms that made landfall, which should prompt anyone to believe that another crippling storm could once again make landfall in our state.

In February 2011, OIR released their “Annual report of aggregate net probable maximum losses (PML), financing options, and potential assessments.” The report indicated that combined annual assessments for Citizens and the Cat Fund after a 250 year PML are estimated to be $2.5 billion. This is $2.5 billion per year for 30 years, and is in addition to the $6.7 billion of surcharges and regular assessments that would be levied in the first year.

According to an April 2010 Florida TaxWatch report, despite the absence of land falling storms, both state-run entities have faced enormous potential shortfalls because of limiting bonding capabilities. The report indicated a 100-year probable maximum loss that would have left Citizens with a deficit of $10.6 billion and the Cat Fund with a shortfall of $24.9 billion. Additionally, Florida TaxWatch reported assessments to repay the combined $35.5 billion shortfall, spread over 30 years, at an assumed interest rate of 4 percent, are $117.9 billion.

While these facts and figures are based on a very large storm, a 1-in-100 storm is realistic and is not even the worst case scenario. If subsequent storms impact Florida during that 30 year period, which is highly probable, it is likely the hurricane taxes will be crippling for business, charities and consumers alike.

Unfortunately, because our elected officials have not made the necessary changes to stabilize our property insurance market in the past, these frightening figures could one day become a harsh reality. This session AFP will be working with the business groups and charities, urging the Florida Legislature to make the necessary changes in order to better protect the citizens of our great state. Please contact your legislator today to communicate the importance of hurricane tax relief by reforming both Citizens and the Cat Fund, and reducing the role of these government agencies in our private market.

Like this post? Chip in $5 to AFP