Florida is ending this year’s storm season with some good news.
The state-created fund that backs up private insurers in Florida remains in the best financial shape it has been in since it was created 20 years ago.
New estimates drawn by financial consultants and Wall Street firms suggest the fund can borrow enough money to cover its obligations for the hurricane season that ends next month. Insurers are required to purchase coverage from the fund.
Jack Nicholson, executive director of the Florida Hurricane Catastrophe Fund, said the fund remains strong since it has nearly $10 billion available in cash after years of no storms hitting the Sunshine State.
“We’re in as strong a position as we have ever been in,” Nicholson said.
The situation isn’t perfect, since a big storm could wipe out the fund and leave it short of money the next year. That could prompt insurers to stop writing policies and damage the state’s economy.
But the fund’s financial status is much better than it was during the height of the Great Recession, when convulsions in the financial industry created fears that the fund would not be able to pay off its claims.
The fund, which is also called the Cat Fund by state regulators and those in the insurance industry, was created after Hurricane Andrew caused widespread damage.
The fund offers insurance companies reinsurance at prices generally lower than those in the private market. It was designed to help keep private insurers from leaving the state. Every company is required to purchase coverage to pay off claims after insurers reach a certain level of damages.
But the fund has to borrow money if claims exceed its cash reserves. That money is then repaid by placing a surcharge, sometimes dubbed a hurricane tax, on nearly every insurance policy in the state, including those for vehicles.
Some critics contend that legislators should scale back the size of the fund to avoid the chance of a surcharge.
“Now that the Cat Fund is at its healthiest, the time is right to shift some of that risk to the private market, so the Cat Fund is never again in a position where it is selling fake coverage,” said Christian Camara, Florida director of a free-market think tank.
This storm season the fund is providing $17 billion worth of coverage. An advisory panel on Thursday signed off on the new estimate that shows the fund has close to $12 billion available and could borrow $6 billion if it needed to cover a large storm.