Cat Fund reform sails through first committee, future cloudy

After being dormant most of this session – and seemingly dead – a bill intended to “right size” the Florida Hurricane Catastrophe Fund received its first formal approval in week 6 of the 2012 Florida legislative session.

SB1372, the bill voted out of the Senate Banking and Insurance Committee, is aggressive. Most of its provisions, however, are phased in over a number of years. Here is a summary of the current Senate bill:

• Mandatory Coverage Limit – the total amount of reinsurance provided by the Cat Fund would be reduced to $12 billion (from current $17 billion) over a four-year period beginning in the 2012-2013 contract year.
• Retention – the insurance industry's retention (equivalent to a deductible) would increase to $8 billion for the 2013-2014 contract year (from current $7.4 billion).
• Maximum Reimbursement Percentage – above an insurer's retention, the maximum amount of reimbursement from the Cat Fund would be reduced from its current level of 90%, by 5% annually beginning with the 2013-2014 contract year, until it reaches 75% for the 2015-2016 contract year.
• Cash Build-Up Factor – the additional amount of premium paid by insurers to the Cat Fund to accelerate the build-up of cash reserves would be increased by 5% annually until the factor reaches 50% for the 2018-2019 contract year (from its current level of 15%).
• Assessments – emergency assessment limits would be reduced beginning in the 2015-2016 contract year. 
• Optional TICL Coverage – would be repealed after the 2012-2013 contract year.

The Cat Fund is a Florida government program that provides lower-cost reinsurance for insurance companies. If cash reserves are insufficient to reimburse insurers, the shortfall is recouped through assessments (surcharges) that are passed on to insurance consumers.

Supported by many in the business community to reduce assessment exposure (see YouTube video sponsored by AIF), the proposal to reform the Cat Fund is highly controversial, as higher reinsurance costs for insurers and higher insurance premiums for consumers are a likely effect of shrinking the Cat Fund. See Week 2 ("Downsizing of Cat Fund".

The House has yet to have a committee vote on the companion bill, HB 833.

For more information, see Cat Fund . . . clear[s] Senate panel, but . . . stalled in House, Little political will in Tallahassee to reform . . . Citizens, and presentations about the FHCF listed on the 2012 Legislative Resources tab.

This summary was prepared by Perry Cone and posted at TallyInsLaw.com.

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