Loan Readiness

Floridians still remember Hurricane Andrew from 20 years ago and for good reason given the destruction the Category 5 wrought. Andrew still ranks as one of the most expensive natural disasters ever in the U.S.

The state and weather experts have learned from Andrew while acknowledging there are still lessons to be implemented.

Forecasters have improved their ability to predict a storm’s path, although they still have trouble gauging several days in advance how big a storm could be or whether it will quickly intensify the way Andrew did in 1992, according to outgoing National Hurricane Center director Bill Read. Read says Andrew also led to equipment upgrades for hurricane forecasters. However federal budget cuts could make maintaining all the equipment that forecasters use a serious challenge.

One very important lesson Florida learned was to enforce the more stringent building codes. Policymakers deserve credit for that achievement.

After Andrew, Florida also created the Florida Hurricane Catastrophe Fund to sell low-priced reinsurance and help keep insurers in the state. While the fund has helped insurers, it is on very shaky financial ground these days and may not be able to fulfill its obligations should a major storm hit.

Fund officials expect to have more than $8.5 billion in their coffers by the end of this year. But the fund’s liabilities could exceed $17 billion after a major storm. That means it would need to borrow the rest if a storm hit.

But would it be able to do that after a storm?

Some financial experts predict the state would be able to borrow up to $7 billion after a hurricane. But others say the state would be lucky to be able to borrow $4 billion after a storm. Thus the state fund could face a shortfall of at least $1.757 billion, possibly more.

But just as nobody yet knows for sure what a storm will look like days from now, nobody knows what shape financial markets will be in if and when the fund needs to borrow.

Fund officials are urging the state to consider borrowing now to fill the gap rather than waiting until after a disaster.

Every property and auto insurance policyholder would be assessed to repay whatever money is borrowed. Since many politicians have been unwilling to reduce the size of the fund because that would hike premiums, they should at least consider the proposal to get a loan backup in place sooner rather than later. The state owes those who will eventually foot the bill the best deal it can find. Borrowing now rather than later seems like a sensible act of hurricane preparedness under the circumstances. Florida has been lucky, some say, in recent years. The 2011 hurricane season was the sixth consecutive year without the U.S. landfall of a major hurricane. Nobody knows when this luck might run out.