Fla. Measure to Increase Availability of Homeowners Insurance Becomes Law

A measure designed to increase the availability of homeowners insurance and improve Florida’s ability to recover financially from catastrophic hurricanes through improvements to Florida’s Hurricane Catastrophe (Cat) Fund was signed into law Tuesday. The Cat Fund was created after Hurricane Andrew to ensure that Florida’s insurance companies could quickly pay homeowners claims after a major hurricane and continue to provide coverage.

The Cat Fund’s capacity will expand from $11 billion to $15 billion in time for the 2004 hurricane season. The Cat Fund currently provides $11 billion of capacity, or reinsurance. Reinsurance is insurance for insurance companies.

The lack of reinsurance available through the private market, coupled with the inability of the Cat Fund to grow with the market, has reportedly resulted in a number of consumers being dropped by their insurance company and forced into Citizens Property Insurance Corporation, the state’s insurer of last resort.

“Our state is now home to nearly 16 million people, and we are hearing from homeowners daily who are frustrated with the lack of availability and the cost of insurance,” said Florida’s Chief Financial Officer Tom Gallagher, the chief proponent of the bill. “Expanding the Cat Fund will promote needed competition in the marketplace by encouraging insurance companies to write more coverage for homeowners. In fact, several insurance carriers have already committed to writing more coverage this hurricane season.”

In addition to guaranteeing Florida an adequate supply of catastrophic reinsurance, the FHCF also lowers homeowners’ premiums by providing this type of coverage to insurers at significantly lower prices than is available in the private market.

Director of the Florida Office of Insurance Regulation Kevin McCarty praised the changes to the FHCF, noting, “If we learned one thing from Hurricane Andrew it is that we have to take matters into our own hands in preparing our state for disasters. We have experienced times when the world reinsurance market is not able to sufficiently cover our state’s needs; the expansion of the fund will insure that we are able to adequately underwrite our catastrophic risks.”

Following Hurricane Andrew, Florida’s homeowners insurance market was on the verge of financial collapse. As Florida’s Insurance Commissioner during this period, Gallagher spearheaded the creation of the Cat Fund along with other measures that led to the recovery of Florida’s insurance market. Many states have reportedly replicated these programs to insure their own catastrophic risks.

The new law goes into effect on June 1, 2004.