The Florida Hurricane Catastrophe Fund is expected to pay about $3 billion towards the estimated $21.9 billion in combined damage from the four 2004 hurricanes, according to the state's CFO Tom Gallagher. Insurers expected to tap Florida catastrophe fund for $3 billion (A.P. Wire Oct. 18, 2004). The state's cat fund works as catastrophe reinsurance for the state's windstorm insurers, with each storm having a separate $4.5 billion deductible to be absorbed by the covered companies. The first of the two hurricanes (Frances and Ivan) may not qualify because their estimated damage is below the deductible, but Charley and Jeanne are expected to breach the threshold.
The state-subsidized fund is designed to encourage insurers to offer windstorm coverage in Florida. In 1992, Hurricane Andrew's $16 billion in losses drove several companies into insolvency and also wiped out the cash reserves of the state's guaranty fund, which stands behind insolvent insurers. Gallagher is quoted as seeking legislative changes to the deductible levels in a special legislative session. In April, 2004, Gallagher was quoted by the Insurance Journal: "Expanding the Cat Fund will promote needed competition in the marketplace by encouraging insurance companies to write more coverage for homeowners."
In a September, 2004 commentary by Gallagher comparing Charley v. Andrew, he compared the "too low" premium rates of 1992 to rates he today regards as adequate to provide sufficient reserves for insurers to weather catastrophic storms. He contrasted his view to that in consumer letters, published this fall, arguing that windstorm insurance rates should be reduced "because it has been 12 years since Hurricane Andrew: A week later Charley hit."
Posted by dougsimpson at October 20, 2004 07:05 AM | TrackBack