The state of Florida is well-known for a lot of issues — sunshine, seashores, golf programs and Disney World, to call just a few. Sadly, it is usually identified for bearing the wrath of one in all Mom Nature’s most fearsome and damaging kinds of storms: hurricanes.
Hurricane Andrew was one of many worst hurricanes to ever hit Florida. I lived in Fort Lauderdale when Andrew barreled ashore in 1992 and can always remember that sleepless night time spent listening to the howling winds and rain and questioning if I might reside to see the solar come up the following morning.
Andrew’s Harm and Legacy
Andrew brought on a staggering $25 billion in damages in Florida alone — together with $16 billion in complete insured damages — and destroyed greater than 25,000 properties and broken one other 100,000-plus. This had a significant influence on insurance firms within the state, a lot of which questioned whether or not they might afford to proceed offering protection in Florida.
Within the wake of the storm, Florida created the Florida Hurricane Disaster Fund (FHCF) in 1993 to assist discourage non-public insurers from leaving the state. The tax-exempt state belief fund is designed to assist non-public insurance firms pay out hurricane-related claims by providing them reinsurance at costs typically decrease than within the non-public market.
Based on the FHCF’s web site, the aim of the fund is to “defend and advance the state’s curiosity in sustaining insurance capability in Florida by offering reimbursements to insurers for a portion of their catastrophic hurricane losses.” The FHCF is presently funded by way of a 1.3 p.c surcharge on most property/casualty insurance insurance policies issued within the state.
Is the FHCF a Good Mannequin?
On condition that the FHCF has now been in existence for greater than twenty years, it appears honest to ask the query of whether or not or not it’s a good mannequin for insuring in opposition to future catastrophes.
All through its historical past, the FHCF has skilled instances when it was flush with money and instances when it actually ran out of cash. The latter occurred in 2005 after Florida was hit with eight storms over the course of simply two years. The fund needed to borrow $2.6 billion to repay obligations to personal insurers after Hurricane Wilma, the final of those eight storms, hit in 2005. This prompted the present 1.3 p.c insurance coverage surcharge.
Nevertheless, Florida has not suffered a direct hit from a hurricane since 2005. Consequently, the FHCF now has a steadiness of about $13 billion, which might allow non-public insurers to borrow greater than $8 billion within the occasion of a catastrophic hurricane, in response to the fund’s advisory council. As a result of fiscal well being of the fund, the Florida Cupboard just lately voted to finish the 1.3 p.c coverage surcharge beginning in 2015 — a 12 months before was initially anticipated.
In fact, one other Hurricane Andrew might change this example straight away. Nonetheless, for now, the FHCF seems to be fiscally sound. As well as, since its inception, the fund has completed its main purpose of sustaining insurance capability in Florida.
Whereas the FHCF isn’t excellent, this does make it a mannequin for insuring in opposition to future catastrophes that different states may a minimum of wish to contemplate.