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Miami Herald: Hurricane tax is greatest risk

Thursday, December 08, 2011

Hurricane tax is greatest risk

For years Florida has been on the precipice of disaster because of the risks posed by the state-run Citizens Property Insurance Corp. and Florida Hurricane Catastrophe Fund. Some of our elected officials now realize how immediate reform of Citizens and the Cat Fund can responsibly improve our broken insurance system.

Cat Fund Chief Operating Officer Jack Nicholson is one expert who continues to speak truths about the current situation while also championing reform. He shared a proposal for downsizing the Cat Fund in an effort to eliminate its potential $3.2 billion shortfall by demonstrating how the fund’s shortfall could dramatically impact the state. Based on analytical data from 11 Florida insurance companies, if the Cat Fund had a shortfall of 20 percent after a storm, seven of the 11 companies would be insolvent. Of the companies analyzed, six of the 11 are ranked as the top 15 insurers in the state and collectively represent 1.2 million policies. This could lead Florida’s insurance markets into a death spiral since those insurers left standing end up paying the costs of those who fail.

While some news reports have suggested reform will lead to painful rate hikes, in reality it’s the hurricane assessments that can be levied on all Floridians that pose the greatest risk of financial disaster.

Here’s an example: A recent Florida TaxWatch report reviewed several proposals for reforming the Cat Fund, demonstrating that risk-reducing reform could raise the median policyholder’s cost by as little as $19.25 to as much as $173.04 annually while providing very significant risk reduction. In contrast, a single storm can lead to a six-percent assessment on a consumer’s car and home insurance. Let’s estimate that the combined premium is $5,000 annually, the six-percent assessment is then $300 and the assessment would last until the bonds are paid off.

Rep. Bill Hager of Boca Raton has filed legislation to save all Floridians from the financial burden associated with Cat Fund shortfalls and the hurricane tax. We support HB 833 and urge the legislature to consider this good bill. It’s time to fix the state’s interrelated system before change is too late.

Jose Gonzalez, vice president of government affairs, Associated Industries of Florida, Tallahassee

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