Florida Senator Tries Cat Fund Changes to Cut Cost of Property Insurance

Seeing no action on bills that would address Florida’s spiraling property insurance problems head-on, one state senator took a different route Thursday and proposed reducing insurers’ payments to the state’s hurricane catastrophe fund, a move he said could save policyholders as much as $1 billion a year.

The amendment by Sen. Jeff Brandes, R-St. Petersburg, to Senate Bill 468 surprised some but sparked considerable discussion at the Senate Appropriations Committee meeting.

“We’ve only known about this for the last 24 hours,” said Gina Wilson, chief operating officer for the Florida Hurricane Catastrophe Fund. She urged Senators to wait on the amendment.

“This is a substantial reset to the cat fund,” Wilson said. “Because of the substantial impact on the cat fund, I think a deliberate and collaborative process would be important – to really understand the impact of what this could do to the fund.”

Brandes, who is serving in his last session, has been outspoken about the need to remedy some of the issues that are causing Florida property insurers to raise premiums, slash coverage and, in some cases, become insolvent. But a Senate bill that would address what insurers have said are some of the main culprits behind the crisis, including solicitation by roofers, out-of-control litigation costs, and the requirement that most homeowner policies must pay for full replacements on roofs, has not received a committee hearing in the 2022 session.

That has prompted Brandes to seek other approaches to try and reduce the escalating cost of property insurance.

“We have yet to see a bill that addresses or would make a real impact on Florida policyholders,” Brandes said in the meeting. “We have to do something.”

“I think he saw this as a good opportunity to get the discussion going,” said Paul Handerhan, president of the Federal Association for Insurance Reform, which supported the senator’s amendment.

The catastrophe fund provides a backstop or state-managed reinsurance for Florida insurers who face huge losses after hurricanes. Premiums are paid annually by insurers, and part of those premiums go into a rapid cash buildup factor. The factor allows quick access to cash that isn’t tied up in bonds, officials said.

Brandes’ amendment would have allowed insurers to buy into the cat fund at a lower level of losses – to pay lower premiums and access the cat fund reserves at a lower threshold than is now required. The amendment also would have required the fee for the rapid buildup factor only when the cat fund’s cash balance dips below $10 billion.

The cat fund now has about $11 billion in reserves and another $3.5 billion in “pre-event” bonds, Wilson explained. The fund by law is limited to about $17 billion in total reserves, but one recent report noted it now has a claims-paying capacity of more than $20 billion.

Brandes and others have argued that the excess capacity is not needed at this time, and that reducing the premiums from insurers would mean the savings could be passed on to consumers. The relief would amount to roughly $150 per year per residential policyholder, he said.

“The cat fund is in its best position ever and consumers are in their worst position ever,” Handerhan said.

Wilson, the cat fund COO, said that reducing premiums, lowering the loss threshold and putting an end to the rapid buildup funding could weaken the cat fund, forcing it to rely on reinsurance and capital investments from private sources. That happened the last time the loss threshold, also known as the retention level, was lowered in 2004, she noted.

Carolyn Johnson, director of business economic development at the Florida Chamber of Commerce, said the Chamber is opposed to Brandes’ plan. The current structure keeps the cat fund viable and stable; without it, if the state were hit with major losses in a storm, all insurers, including commercial and auto insurers, could be stuck with higher assessment payments.

The Chamber is looking at other measures that would address the Florida insurance crisis, Johnson said.

Sen. Ben Albritton, R-Bartow, urged colleagues to consider forming a study commission or think tank that could analyze the issue, perhaps this summer.

In the end, Brandes withdrew his amendment, but said he may offer it again next week to the Senate Banking and Insurance Committee, where he is also a member.

The bill that Brandes was attempting to amend, Sen. Keith Perry’s SB 468, was approved Thursday by the Appropriations Committee by a vote of 18-0. The bill, which has already passed the Senate Banking and Insurance Committee, would make a number of technical and relatively minor changes to workers’ compensation and insurance regulations, including the cat fund.

Among other matters, it would direct the cat fund to reimburse for losses covered by lender-placed policies on homes, when the coverage amount differs from the amount under a lapsed policy; would exempt smaller businesses from workers’ compensation premium audits; and would allow Citizens Property Insurance Corp. to offer wind-only policies for condominiums.

The Appropriations Committee also approved SB 838, requested by the state’s fire marshal and chief financial officer. It would make fire investigators in the state eligible for a presumption that provides limited benefits for firefighters who are stricken with any of 21 types of cancers. The program is considered an alternative to workers’ compensation benefits.

The actions came one day after the Senate Banking and Insurance Committee approved another measure sponsored by Brandes. SB 186 could help stem the growth of the state-backed Citizens, an organization that was created to be an insurer of last resort but has ballooned in size in recent years.

The bill would make it harder for seasonal Florida residents, or those with second homes in the state, to qualify for continued Citizens’ coverage if another insurer will write the property at slightly higher or moderately higher premiums.

The bill also would allow more surplus lines insurers to participate in the Citizens take-out programs and would increase the maximum surcharge on policies if Citizens runs a deficit. The more policyholders Citizens has, the higher the surcharge, the bill stipulates.

The measure also would limit commissions that Citizens pays to producing agents.