As discussed here, Florida established a Hurricane Catastrophe Fund (“CAT Fund”) in November 1993, to protect and advance the state's interest in maintaining insurance capacity, by reimbursing insurers for a portion of their catastrophic hurricane losses. Earlier in 2007, Florida’s Legislature approved an additional $12 billion in optional reinsurance coverage to provide rate relief to consumers. The Legislature believed that savings, which were derived when insurers purchased CAT Fund coverage at below-market rates, would be passed along to consumers in the form of lower rates. However, the anticipated rate relief failed to materialize.
Accordingly, to reduce the risk of Floridians paying higher taxes on insurance policies in the future, on October 16, 2007, Florida’s Chief Financial Officer, Alex Sink, proposed to change the CAT Fund’s operation. Sink’s proposal would authorize the Governor and the Florida Cabinet to set levels and prices of reinsurance in the CAT Fund during the winter months, before insurance companies decide how much reinsurance to purchase. The changes Sink proposed would increase flexibility and accountability in the management of Florida’s reinsurance fund and promote greater competition in the private insurance market.
Click here to read Sink's statement about the proposal, and click here to read the proposal. We will monitor this and related developments and provide updates at InsureReinsure.com.