Hurricane season is here, and Florida is facing the prospect of storms with confidence. The state has a well-stocked hurricane insurance fund with enough money to pay off everything it could owe should a massive storm strike. This is a banner year for the state hurricane insurance fund, as it marks the first year in which the state has been so well-endowed.
The healthy balance in the hurricane fund is a result of Florida’s nine-year streak of avoiding hurricanes. This reprieve has allowed state officials to gather cash, which according to the fund’s chief operating officer is $17 billion, up over $14 billion at the start of last year’s hurricane season.
The “Cat Fund,” as Floridians call it, is critical because it can also determine the price of other insurance policies. The state can enforce a surcharge on insurance policies, such as car insurance, to restock the Cat Fund if it runs out of money. Some wryly refer to this surcharge as a “hurricane tax.”
Controversy Arises Over Funding Decisions
The last big hurricane to strike Florida was Wilma in 2005. However the state first created the fund in 1992, following devastation caused by Hurricane Andrew. It was conceived with the purpose of preventing private insurers from abandoning the state and offers insurance companies partial reimbursement for their costs in covering catastrophic hurricane losses.
In order to maintain the financial health of the hurricane fund, Florida turns to Wall Street experts to gage how much money the fund needs and how much it could borrow if needed. While reports of the most recent meeting of financial experts indicate that the fund could cover its maximum claims without borrowing any extra money, state officials chose to purchase $1 billion worth of back insurance this year.
Some Floridians aren’t happy with this decision. Critics argue that the purchase could drive up homeowner insurance rates, while others contend that it simply wasn’t necessary. According to one public adjuster, the state could have survived a storm just fine with the money that was already in the fund.
In the meantime, the Red Cross is preparing for the possibility of a hurricane by running hurricane disaster drills throughout North and South Carolina. Because this year marks the 10th anniversary of Hurricane Katrina, it has caused many to evaluate the likelihood of another storm of its kind, and to make preparations for another storm of similar magnitude.
While it is impossible to predict with certainty, statistics show that for any given year, there is a 40 percent chance that a Category 3 or higher storm will hit a U.S. coastline. As things stand now, Florida’s hurricane insurance fund is ready to stand up to a big one.