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Lawmakers consider bills to shrink Cat Fund, increase insurance rates

Property insurance rates could inch up faster under two proposals that were discussed this week in the Florida Legislature.

The proposals, HB 1107 and SB 1262, would shrink the state’s Florida Hurricane Catastrophe Fund, a tax-exempt fund that provides low-cost backup insurance for property insurers.

Shrinking the $17 billion “Cat Fund” to $14 billion over three years would likely increase insurance premium by an average of nearly 7 percent over that period, according to initial estimates by the Insurance Consumer Advocate. That would come on top of other annual rate increases that are often in the double digits.

Supporters of shrinking the Cat Fund say it’s a fiscally prudent move, since the fund would have to borrow money after a massive hurricane and doing so might be difficult under certain circumstances. That could lead to financial turmoil for the state, with many insurance companies going belly up. Such a scenario is very unlikely, since the bond markets could provide billions of dollars to cover a disaster but proponents are using it to push the urgency of the perennial Cat Fund bill.

“Without a firm foundation, no industry will be able to stand and without proper financial background, and the Cat Fund will not be able to pay the claims,” Sen. Alan Hays, R-Umatilla, who is backing the bill, said Thursday.

The committee took the Cat Fund provision out of a larger, comprehensive insurance bill last month, because of fear over the “rate shock” it could cause. But Hays resisted and filed his own bill to shrink the Cat Fund. A similar bill, sponsored by Rep. Bill Hager, R-Boca Raton, was workshopped in the House on Wednesday.

“The reality is that Florida is one storm away from major fiscal devastation,” Hager said in a statement. “I’m pleased that we were able to begin the dialogue today in the Florida House and look forward to this bill being heard by all of my fellow legislators.”

Critics of shrinking the Cat Fund--which offers lower rates than private reinsurers because it is tax-exempt—say the push is a giveaway to private, unregulated reinsurers based out-of-state and often offshore. Consumers would have to pick up the tab through higher rates, critics say.

Jay Neal, director of advocacy group Florida Association for Insurance Reform, said rates would have to increase if the Cat Fund shrinks. He also questioned the claim that the Cat Fund was overly risky, saying that the fund could borrow more than enough money after a storm to pay costs, over time.

Supporters include business groups and environmentalists, who have joined to create the Stronger Safer Florida coalition, which is pushing to shrink Citizens Property Insurance Corp. and discourage coastal development.

The Senate Banking and Insurance Committee also voted in favor of SB 378, which would make Citizens Property Insurance Corp. provide coverage for mobile homes, and the structures attached to them.

Last year, Citizens stopped covering attached structures such as carports and screened enclosures for all homes, as part of an austerity push to make the company less attractive.

It led to outcry from homeowners—and particularly mobile homeowners—who said they were left with no ability to insure parts of their properties.

“For many, if you have a mobile home, it’s tough to get insurance,” said Sen. Aaron Bean, R-Fernandina Beach, who is sponsoring the bill. “And that’s what Citizens is set up for.”