FHCF Right-Sizing Becomes Bite-Sized
Discussions about the proper size of the Florida Hurricane Catastrophe Fund have been intense throughout the 2013 legislative session. The FHCF proposed last year that it should be reduced in size to better ensure it can meet its reimbursement obligations to insurers. However, last year’s proposal called for changes that were too significant and would have caused a meaningful rate impact to consumers, so the idea eventually was shelved.
In 2013, Jack Nicholson of the FHCF has said the he would like to see the legislature at least take smaller steps toward reducing the FHCF’s size. Versions of the so-called right-sizing proposal would reduce the FHCF’s single-season limit by $3 billion over several years while also reducing the maximum reimbursement percentage available to insurers by 15 percentage points. Still, however, some policymakers don’t agree with reducing the size of the FHCF because of the potential rate impact. In fact, some legislators believe the industry aggregate retention beneath the FHCF should be reduced so the FHCF displaces the most costly layers of private reinsurance purchased by residential insurers.
As the 2013 session enters its final weeks, legislators are looking for a compromise on these issues. Recently, a House proposal would reduce the FHCF by only $500 million by 2014 rather than the $3 billion over three years as initially proposed. However, any form of right-sizing must be passed by the Senate as well, and the Senate thus far has been more inclined to lower the retention of the FHCF than to reduce its limit.
Although this issue has been the subject of considerable discussion over the course of two legislative sessions now, it appears the outcome of the FHCF right-sizing proposal won’t be known this year’s until the session’s final days.