Florida Chamber Urges Senate Committee to Oppose SB 1454, Hurricane Catastrophe Fund

 

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To: Senate Banking and Insurance Committee

The Florida Chamber of Commerce urges you to oppose SB 1454, related to the Florida Hurricane Catastrophe Fund. This bill, proposed by Senator Jeff Brandes, will be heard Tuesday, February 20, 2018 in the Senate Banking and Insurance Committee.

The Florida Hurricane Catastrophe Fund (CAT Fund) was created after Hurricane Andrew to help stabilize Florida’s insurance marketplace and provide affordable reinsurance. The CAT Fund directly competes with the private reinsurance market. Florida insurers are required to purchase reinsurance through the CAT Fund up to the maximum obligation, which is $17 billion a season, regardless of the CAT Fund’s ability to pay. The State Board of Administration turns to the bond market if the CAT Fund does not have enough money to pay losses from a hurricane, which is then repaid through a “tax” on all insurance policies except workers’ compensation and medical malpractice. The cash build-up factor was created in 2009 to help increase the balance of the CAT Fund when the balance of the CAT Fund was at a historic low.

SB 1484 permanently eliminates the cash build-up factor even though the CAT Fund is not financially at its oneyear maximum capacity. Additionally, eliminating the cash build-up factor fails to contemplate a second season of storms, which could cause the State Board of Administration to turn to the bond market to fund losses. These assessments would then be levied on all insurers, regardless of whether they benefit from the CAT Fund. For these reasons, the Florida Chamber opposes SB 1484 and this issue has been included in the 2018 Florida Business Agenda.

This bill is opposed by Florida’s business community because it:  Puts the short term ahead of the long term by eliminating the cash-build up factor which is used to increase the CAT Fund’s balance;  Increases the risk of hurricane “taxes” if Florida is faced with a series of storms or multiple seasons of storms; and  Creates economic uncertainty for insurers which are required to purchase reinsurance through the state’s CAT Fund.

The Florida Chamber urges you to oppose SB 1454, and will consider votes on this legislation, and any substantive amendments to it in committee or on the floor, in our annual How They Voted report card. Because of the importance of this issue to employers across the state, our Board of Directors has determined that this bill, and any substantive amendments to it in committee or on the floor, will be counted twice on our legislative report card. The grade that you earn will be based on your voting record on the issues, such as this one. We will make every effort to notify you prior to a vote that may be included in our annual legislative report card. If you have any questions about this or other issues, please do not hesitate to contact me.

Regards,

Frank C. Walker, III
Vice President of Government Affairs

Property Insurance Reform

 

Creating Competitive and Stable Insurance Markets

 

Why It Matters to Florida

Creating a competitive and stable insurance market will lower costs for Florida’s policy holders. We must continue initiatives like limiting the size and exposure of Citizens Insurance, reforming Florida’s Catastrophe Fund, spreading risks, reducing fraudulent claims and allowing for creative solutions for the issues homeowners and businesses face. Reforming Florida’s property insurance system will help reduce taxpayer risk in the event of a catastrophic storm and further improve Florida’s business climate.

Florida’s Competitiveness Agenda

  • Citizens Property Insurance
    Florida’s unique geography leads to a marketplace for property insurance that is far more complex than other states. We must continue to fight for legislation that spreads risk and empowers Floridians to invest in their safety. The Florida Chamber has long advocated that homeowners should be provided with creative, market-based solutions to our natural disaster risks, and the state should do what is necessary to limit growth in the government-run citizen Citizens Property Insurance.
  • Florida’s Catastrophe Fund
    Instead of relying on good luck to protect Floridians, the Florida Chamber believes that improving the claims paying ability of the Florida Hurricane Catastrophe Fund will reduce the need for hurricane taxes on businesses, families, charities, churches and automobile policyholders. This can be achieved by taking advantage of favorable market conditions in the private reinsurance markets.
  • Assignment of Benefits
    The “assignment of benefits” issue is one the Florida Chamber has been actively fighting to reform in an effort to reduce fraud and abuse in our state’s insurance system. Inflated claims through assignment of benefits are the result of an increase in the number of claims in which the policy has been signed over to a third-party repairing the damage, where the third-party is also working with a trial lawyer. In these instances, the damages are repaired before the insurer can even come out to adjust the claim, and then the trial lawyer sues for additional damages beyond what was necessary.

The Fight for Free Enterprise Continues

We must fight to keep consistent tax and regulatory systems, continue to reign in our state’s government run property insurance company and champion a fair legal climate to improve job growth.

Act Now

Instead of short-term solutions from well-funded plaintiff trial lawyers with special interest agendas, the Florida Chamber is focused on creating long-term sustainable solutions so Florida can continue to attract, add and grow the top businesses in the nation. Tell us how insurance issues affect your ability to do business in Florida by contacting Carolyn Johnson.

Florida Still Has Too Much Hurricane Risk

While Florida has billions of dollars invested in hurricane risk, we’ve been fortunate no hurricane has made landfall since 2005. However, there’s a really tricky thing about hurricanes — they are impossible to predict when and where they will hit in advance of the season.

As someone who makes forecasts for a living — economic forecasts, not weather — we know that using the past to forecast the future is fraught with difficulty. If you had taken a look at the history of hurricane landfalls in Florida, you would likely have never forecast zero hurricanes to hit Florida during any year. Frankly, had you forecast the number hitting Florida to be zero in the last 10 years, nobody would have believed you, but that’s what has happened.

And even though Florida’s Hurricane Catastrophe Fund has a substantial amount of cash, most Floridians don’t realize the CAT Fund borrows money (called pre-event bonding) to make sure we have enough resources in case a severe storm or series of storms hits.

The fund currently relies on about $2.7 billion in borrowed money. This gives the fund the liquidity it needs to cover its obligations for the year. However, the risk is that once we deplete the fund or have to draw it down substantially, Floridians are at risk in subsequent hurricane seasons. On top of that, we’ll have to pay back the borrowed money.

The fortunate thing is the lack of hurricanes hitting Florida has given the fund an opportunity to increase its cash on hand as it prepares for the inevitable hurricanes. However, Florida still has too much hurricane risk in its overall portfolio.

As is common with other types of portfolios, managers reduce risk by hedging, often by purchasing options that will protect their position. In Florida’s case, that would be purchasing reinsurance to protect a portion of the cash balance in the fund, or cover the money the fund borrowed in advance to be ready for the hurricane season. Managing Florida’s risk to preserve the fund’s cash so that Floridians will be paid in a timely manner for storm damages helps to lay off risk to others. Yes, it costs money, just as it costs money to insure any other asset.

Some people will say we don’t need to lay off any of our risk to those outside the state — and you know they just might be right — none of us will know until after the hurricane season ends. But we also know they can’t predict hurricanes with any certainty either.

We should remember that a storm the size of Andrew, and the damage that it inflicted on Florida, was widely believed to not be possible at the time. All the hurricane models had to be updated after Andrew, and insurance became almost unobtainable in many parts of Florida after that storm.

Even after the multiple hurricanes of 2004-05, we learned that a series of smaller storms can deplete the cash of the fund, and assessments or “hurricane taxes” are applied to insurance policies on Floridians’ homes, cars, boats and motorcycles.

And much has changed to increase our risk since the last hurricane landfall. Our state has grown by an additional 2.5 million people.

While it may be challenging to predict the future based on past experience, one thing is certain. It took Florida more than 10 years to build up the cash we currently have to help pay for future storms. Given that reinsurance costs are near historic lows, now might be a good time to insure some of the $2.7 billion Florida has borrowed.

 

May 17, 2016 | Articles | SunSentinel.com
By Dr. Jerry Parrish, Chief Economist, Florida Chamber Foundation

Just in Time for Hurricane Season: Property Insurance Catastrophe Fund is in Good Fiscal Condition

Good news just in time for the 2015 hurricane season. For the first time since its 1993 creation, the Florida Hurricane Catastrophe Fund (CAT Fund) has enough liquidity to cover the $17 billion statutory coverage, according to state data released last week.  Claims-paying estimates provided to the CAT Fund Advisory Council show the program will have $12.8 billion in cash on hand at the end of 2015. Two years ago, the CAT Fund began transferring risk and now has $4.2 billion in pre-event bonds and private reinsurance – providing the $17 billion capacity to pay claims for the 2015 hurricane season.

The Florida Chamber of Commerce has long-supported transferring risk to the private reinsurance market to aid in the fiscal health of the CAT Fund. However, there’s more work to be done. While the CAT Fund is now in a better position to protect insurers from their initial season of losses, the CAT Fund could still experience trouble if a second season of storms occurs, according to the data.

The claims-paying estimate data released last week also examined the CAT Fund’s capacity for a second season of storms.  The report assumes that the CAT Fund would not use the pre-event bonding in the first season, and instead would turn to the market for bonds – leaving the pre-event bonding to finance a second season of storms.

The estimated bonding capacity of the CAT Fund is $7.7 billion, which is down $600 million from the October 2014 estimate.  This would allow the CAT Fund to pay only 69 percent of its obligation for the second season, leaving roughly $5 billion in losses uncovered. Post-issued bonds will be paid back through assessments, or “hurricane taxes,” by all property and casualty policyholders, including automobile insurance.  Additionally, insurers may experience trouble during a second season of storms due to the lack of capacity for the CAT Fund to pay claims in this season.

To make Florida more competitive, the Florida Chamber has long-supported reducing the size of the CAT Fund – allowing insurers to plan for more than one season of storms. Share your voice. Contact Carolyn Johnson at cjohnson@flchamber.com to learn how you can help.

Florida Chamber-Backed Property Insurance Reform Approved

The Florida State Board of Administration this week approved a Florida Chamber-backed effort to protect Floridians from future hurricane tax assessments. Governor Rick Scott, Attorney General Pam Bondi, and Chief Financial Officer Jeff Atwater approved giving the Florida Hurricane Catastrophe Fund (CAT Fund) authority to pursue transferring up to $2.2 billion in storm risk to global financial markets in an effort to prevent Floridians from paying future hurricane taxes.

“The Florida Chamber applauds the decision by the State Board of Administration to explore global financial markets to transfer risk from CAT Fund out of the state’s border,” said David Hart, Executive Vice President for the Florida Chamber. “While reinsurance rates are among the lowest in many years, and with the unpredictability of a looming hurricane season, the time to act is now.”

The Florida Chamber has long-advocated that homeowners should be provided with creative, market-based solutions to Florida’s natural disaster risks. Earlier this year, the state of Florida eliminated CAT Fund hurricane tax assessments on Floridians. Thanks to the State Board of Administration’s action this week, future storm risks may be transferred to the private reinsurance market and likely prevent Floridians from being assessed hurricane taxes in the future.

Watch Insurance Leaders Speak:

Watch Florida Insurance Commissioner Kevin McCarty, CFO Jeff Atwater and other insurance industry leaders speak at the Florida Chamber’s 2015 Insurance Summit by clicking here.

Statewide Leaders Dive into Leading Insurance Issues at the Florida Chamber’s insurance Summit

FOR IMMEDIATE RELEASE
CONTACT: Edie Ousley, 850-521-1231 or 850-251-6261
eousley@flchamber.com

CFO Jeff Atwater, Property Insurance and Expensive
Cost Drivers Exploiting Homeowners Take Center Stage

 

ORLANDO, FL. (January 27, 2014) – Statewide leaders are gathered in Orlando today for the Florida Chamber of Commerce’s Insurance Summit  with one common goal- building on Florida’s successes by tackling remaining insurance-related challenges. Leading financial regulators, Chief Financial Officer Jeff Atwater and Florida’s Insurance Commissioner Kevin McCarty, kicked off the day-and-a-half summit that also included a discussion of leading cost drivers that are exploiting homeowners and consumers.

“[The Florida Chamber’s Insurance Summit] is an important gathering. In fact, I would say that the importance cannot be understated,” said Michael Carlson, Executive Director of Personal Insurance Federation of Florida (PIFF). “The prominent thought leaders, prominent stakeholder groups, company executives and representatives, legislators, elected officials, academics all gather under the auspices of the [Florida] Chamber at this event to talk about the problems that we face in property insurance and other insurance markets and more importantly talk about solutions, smart solutions, to address these problems.”

Kicking off the day-and-a-half statewide summit, CFO Atwater applauded the Florida Chamber for bringing insurance industry leaders together to develop solutions that will make Florida more competitive.

“It matters that you’re having these conversations over the next couple of days to navigate ahead toward making sound public policy and advance Florida toward the attraction of capital and making Florida more competitive,” said Chief Financial Officer Jeff Atwater. “The debate will be about how these ideas will create a better environment for consumers to have choice for the best possible deal.”

Insurance Commissioner McCarty highlighted Florida’s insurance successes – especially with Citizens Property Insurance – and how insurers and consumers alike are saving money.

More than 250 insurance professionals gathered in Orlando to focus on a leaner Citizens Property Insurance and how the role of Florida’s financial backstop, the Hurricane Catastrophe Fund, is evolving. Major cost drivers exploiting homeowners – exaggerated claims from unscrupulous contractors resulting in padded profits – also took center stage.

“Imagine this: You wake up to find your kitchen flooded from a broken pipe. You frantically call a water extractor who arrives and says, ‘Don’t worry. Just sign these forms and we’ll handle everything’,” Representative David Santiago, (R-Deltona), recently wrote. “The truth is, you’ve just signed away control of your insurance claim and may have permitted unscrupulous third parties to inflate the cost of the work. Ultimately, you could be sued or face a lien on your property for the difference between what your insurer legitimately owes the contractor and what was actually billed.”

Claims filed under an “assignment of benefits’’ or “AOB” form, which was intended to save homeowners money when having contracted work done, often get abused by unscrupulous vendors- which puts the insurer at risk of being unrightfully sued, driving up costs for businesses and homeowners alike.

“There’s no question that the assignment of benefit situation in Florida is out of control,” said Barry Gilway, CEO, President and Executive Director of Citizens Property Insurance Corporation. He also shared with Florida Chamber Insurance Summit attendees that 85 percent of water claims come from an attorney, not the homeowner or an adjuster, which drives up costs through litigation.

Improving on Florida’s bottom-10 legal climate, PIP reforms and a checkup on Florida’s economy – as well as its electorate – round out today’s agenda.

On Wednesday, members of the Florida House and Senate will gather to provide a legislative overview of what to expect during the 2015 Legislative Session. Private flood insurance markets, as well as a discussion of major Florida Supreme Court cases that could impact Florida’s workers’ compensation system, will be a part of Wednesday’s conversation. Click here for a more complete agenda.

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The Florida Chamber of Commerce is the voice of business and the state’s largest federation of employers, chambers of commerce and associations, aggressively representing small and large businesses from every industry and every region. The Florida Chamber works within all branches of government to affect those changes set forth in the annual Florida Business Agenda, and which are seen as critical to secure Florida’s future. The Florida Chamber works closely with its Political Operations and the Florida Chamber Foundation. Visit www.FloridaChamber.com for more information.

Smart Property Insurance Reforms Equal Consumer Savings

The Florida Chamber’s Bottom Line Featuring Michael Carlson

“We are in the best positon as a marketplace that we have been in for about 10 years now,” said Michael Carlson, Executive Director of Personal Insurance Federation of Florida (PIFF). “Our companies are more solvent, they are better able to make claims, and more importantly our backstop- the Hurricane Catastrophe Fund, our Citizens Property Insurance Corporation, which you know is a government supported entity- are both in the best fiscal shape they’ve been in.”

This is due in part to the smart reforms that have been enacted throughout the past several years such as creating more sustainable Citizen’s Property Insurance rates- allowing private companies to competitively take policies, creating a Citizens Clearinghouse program to help move policies into the private market, and reducing fraud in sinkhole claims.

But while our insurance markets are moving in the right direction, special interests groups continue to fight to make Florida’s insurance markets more expensive for families and businesses alike. For workers’ comp, this is a dangerous problem that could cost businesses increased rates.

“Trial lawyers today are challenging the very smart reforms that have been enacted in Florida since 2003 and if they are successful, you will see cost increases in the workers’ comp systems that will affect Florida’s businesses and Florida’s consumers.”

For property insurance, it could equal direct increased costs to homeowners.

“There is a worrisome trend developing in Florida where the cost driver that’s particularly related to roofing and water claims in the homeowner prop insurance market,” shared Carlson. “There is a legal tool called an ‘Assignment of Benefits’ which we believe is being abused by a cottage industry of unscrupulous vendors and trial lawyers that is causing rates to increase. We need to do something about that.”

One solution, Carlson says, is attending the Florida Chamber’s Insurance Summit January 26-28 in Orlando.

“It’s an important gathering. In fact, I would say that the importance cannot be understated,” said Carlson. “The prominent thought leaders, prominent stake holder groups, company executives and representatives, legislators, elected officials, academics all gather under the auspices of the [Florida] Chamber at this event to talk about the problems that we face in property insurance and other insurance markets and more importantly talk about solutions, smart solutions, to address these problems.”

Join Us:

Register today for the Florida Chamber Insurance Summit January 26-28 in Orlando.

Elimination of Hurricane Tax Assessments Means More Money in the Pockets of Floridians

FOR IMMEDIATE RELEASE
CONTACT: Edie Ousley, 850-521-1231 or 850-251-6261
eousley@flchamber.com

 

Floridians Have More to Celebrate on New Year’s Day
Elimination of Hurricane Tax Assessments Means More Money in the Pockets of Floridians

TALLAHASSEE, FL. (December 22, 2014) – For the first time since 2004, Floridians will have more to celebrate on New Year’s Day than just the dawn of 2015. Floridians will also celebrate the elimination of hurricane tax assessments on their insurance policies and a savings to their bottom line, the Florida Chamber of Commerce announced today.

Insurance policies issued or renewed after January 1, 2015, which includes automobile, business, homeowner, charity, religious institutions, rental, local government and school boards, will no longer include the Florida Catastrophe (CAT) Fund Emergency Assessment hurricane tax. The assessment, which results from the 2004-2005 back-to-back hurricanes, will end a year early thanks to actions taken earlier this year by Governor Rick Scott and the State Board of Administration.

“This is great news for Florida families and small businesses, and further evidence that Florida is moving in the right direction,” said Mark Wilson, President and CEO of the Florida Chamber of Commerce. “While Florida’s storm-free years have benefited Floridians by eliminating hurricane tax assessments, it would be irresponsible to believe Florida will forever be spared from future costly storms. Now is the right time to prevent hurricane taxes from creeping back onto to insurance policies by looking to private market solutions to absorb Florida’s future hurricane risk.”

The 2004-2005 hurricanes resulted in more than $70 billion in damages, and the CAT Fund reimbursed $28.98 billion for residential losses over those two storm seasons.  However, what resulted was a 1.3 percent assessment on all insurance policyholders to pay back $2.6 billion in unfunded liabilities –that’s $350 to $500 million collected from policyholders annually.

“Almost every consumer will benefit by the decision of the State Board of Administration to end hurricane taxes nearly a year early,” said Michael Carlson, Executive Director of the Personal Insurance Federation of Florida. “It demonstrates that we have managed the CAT Fund well, and is another sign that Florida’s property insurance market is healthy.”

Despite the CAT Fund’s good health — $10.9 billion in cash on hand – one storm or a series of storms like 2004-2005 could again deplete the funds and leave Florida insurance policyholder at risk. That’s why the Florida Chamber has long-supported reforming Florida’s CAT Fund – to better protect Florida’s families and businesses from financial disaster.

 

 

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The Florida Chamber of Commerce is the voice of business and the state’s largest federation of employers, chambers of commerce and associations, aggressively representing small and large businesses from every industry and every region. The Florida Chamber works within all branches of government to affect those changes set forth in the annual Florida Business Agenda, and which are seen as critical to secure Florida’s future. The Florida Chamber works closely with its Political Operations and the Florida Chamber Foundation. Visit www.FloridaChamber.com for more information.