Mike Silvers, CPRC, Silvers Systems Inc. and FRSA Director of Technical Services
It seems lately that I cannot escape the obvious subject for this column – insurance. As much as I would like to cover something like a new roof installation method, the property insurance issue and the interaction with the roofing industry, as well as the building code, continues to be front and center, making it very hard to ignore. As those involved in the roofing industry know, there seems to be something new every day. Most of us are well aware and very concerned about what the current state of affairs has done to our trade’s reputation. With so much information and misinformation coming from so many sources, it can be hard to see the big picture. It is important to look at the issue from the industry’s perspective.
The Florida Hurricane Catastrophe Fund Has the Potential to Devastate Our State’s Economy
The Florida Hurricane Catastrophe Fund (FHCF) or Cat Fund was established in 1993. It is a tax-exempt trust fund that acts as reinsurance for approximately 165 of Florida’s property insurers, including Citizen’s. Recently the Fund has been asked to cover additional exposure by acting as a guarantor or reinsurer to cover property insurers whose ratings have been downgraded. The administrators of the Fund have the authority to levy emergency assessments on all property and casualty insurance lines except workers’ compensation, medical and federal flood. The insurance lines that could be levied currently represent approximately $56 billion in annual premium. By the end of 2022, the Fund balance will be approximately $12.8 billion. This sounds like a lot of money and it certainly is. It accounts for approximately one percent of Florida’s $1.2 trillion gross domestic product. But it may not be enough when you consider that the cost of insurance claims paid out for Hurricane Andrew were $15 billion in 1992. Today, according to RMS (a highly-regarded Moody Analytics Company), the cost for the same claims would be between $80 to $90 billion. Other sources estimate a current cost between $50 to $100 billion. One needs to keep in mind that even though Andrew was a very powerful storm, its highest winds were concentrated outside of a major metropolitan
area. If Andrew had been centered just 25 miles further north, you could have multiplied the amount of damage and claims many times over.
Hurricane Irma occurred in 2017 and the Cat Fund paid approximately 43 percent of the losses. The common understanding is that the larger the storm, the higher the percentage paid out by the Fund. It’s clearly not hard to imagine property damage claims of over $100 billion from one major storm that impacts any of Florida’s urban coastal communities with high density population. Multiple storms could add to that already staggering number. Using the $100 billion figure and a 50 percent ($50 billion) Cat Fund hit, you can see that the Cat Fund would be quickly depleted in this very plausible scenario. Florida would be left covering a Cat shortfall of $38 billion in claims while at the same time trying to replenish the Fund before any additional major storms occurred. Not only would our insurance premiums skyrocket but every business in the state would be hit with premium increases that would be passed on to consumers. It’s not a pretty picture, but there are things that can be done and, if you are so inclined, a prayer wouldn’t hurt. Read more.
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