UNITED STATES, Feb 11 — Each new day of the financial crisis brings more shocking news. This week was no exception as executives from General Motors, Ford, and Chrysler flew to Washington on their corporate jets to beg for their share of the $700 billion Troubled Asset Relief Program. In a shameless display of arrogance and entitlement, leaders of what used to be "best in class" companies begged for billions of dollars with their tin cups outstretched in front of the US Congress. As the Florida home insurance crisis continues, it has never been more important for you to stay on top of the Florida home insurance market for private insurance
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ach new day of the financial crisis brings more shocking news. This week was no exception as executives from General Motors, Ford, and Chrysler flew to Washington on their corporate jets to beg for their share of the $700 billion Troubled Asset Relief Program. In a shameless display of arrogance and entitlement, leaders of what used to be "best in class" companies begged for billions of dollars with their tin cups outstretched in front of the US Congress.
Before the Big Three ever arrived in Washington, billions had already been committed to AIG and some of the largest financial institutions in the country. During this financial meltdown we’re seeing something we never expected to see in our lives - broken promises from major corporations and government entities on a scale never considered possible. The day has arrived when large companies and large states like Florida can’t raise the cash they need to meet their promises. If you are a florida home insurance consumer, your biggest asset is now at risk during the financial crisis - your Florida home.
Can you name a more sacred promise than the one a home insurance company makes to you when it takes your money and agrees to insure your home? When you buy homeowners insurance in Florida the insurance company is promising you fast and fair payment of your claim. Florida insurance companies buy reinsurance to help them make good on this promise to you. Reinsurance is backup coverage that insurance companies buy to help protect themselves from big losses above certain levels. The Florida Hurricane Catastrophe Fund was formed to help stabilize the Florida home insurance market after 1992 when Hurricane Andrew caused billions in damage to Florida. By offering reinsurance at affordable rates, the fund helped to make homeowners insurance available and affordable for many years. That all changed after the Florida hurricanes of 2004 and 2005 when Florida home insurance became overpriced and hard to find again.
The Florida legislature responded to the Florida home insurance crisis by voting in 2007 to expand the reinsurance sold by the Cat Fund by $12 billion - raising its total risk to a total of $28 billion. Florida home insurance companies were required to purchase this additional reinsurance from the state and to pass along the savings realized on reinsurance to home owners. As a Florida homeowner, you didn’t get the rate reductions that this law was supposed to provide. You didn’t get the 24% average rate reductions that were predicted when the legislation passed. And to make things worse, the Florida Cat Fund took on an additional $12 billion in risk. Now the Florida Cat Fund has stated that it does not have the money or the borrowing capacity needed to meet its present commitment to the insurance companies after a major Florida hurricane.
It recently estimated that it could pay out $13 billion over the next twelve months - That’s $15 billion less than the $28 billion it is on the hook to pay! Where does this leave you as a Florida home insurance consumer? You didn’t get the rate relief you expected and your state took on financial obligations that it has no hope of paying. You are at risk if Florida experiences a major hurricane in the next year. Once the losses of your Florida home insurance company exceed certain levels, your company will ask the Florida Cat Fund to reimburse them in order to pay your claim. Since the Florida Cat Fund is short on cash, you might have a long delay in getting your claim paid. The promise to pay your Florida home insurance claim has never been more at risk than it is today. Now that you know that the Florida Cat Fund can’t meet its obligations, let’s look at the idea of a National Hurricane Catastrophe Fund that some in Florida have been pushing in Washington for many years.
This National Cat fund would offer an additional layer of loss protection above and beyond the obligations of the Florida Cat Fund. In theory a National Cat Fund would be funded by setting aside a portion of insurance premiums paid by policyholders in the states participating in the fund. A National Cat Fund would be a separate fund that would earn interest and grow during the years when there aren’t any claims. Supporters claim that no taxpayer money would be needed to sustain a National Cat Fund. History tells us there would be storms so large that federal tax dollars would have to be used to cover major losses. And everyone knows that the federal government can’t keep its funds separate. Just ask someone in Washington to show you the billions that are supposed to be in the Social Security Trust Fund.
You won’t be shown any cash - just a drawer full of T-Bills and IOU’s. Now that the Big Three Auto makers and other shameless Fortune 500 companies have beaten Florida to the punch in Washington, it is very unlikely that a National Hurricane Catastrophe Fund will pass anytime soon. The red ink in Washington will make even President Elect Obama shy away from any additional federal obligations. So don’t look to the federal government to help keep the promise that was made to pay your Florida home insurance claim. Finally, Citizens Property Insurance Corporation has consistently reported that it doesn’t have anywhere near the money it needs to pay out the almost half a trillion dollars in hurricane exposure it after a major Florida hurricane. A large hurricane would mean that Citizens can’t pay even its primary obligations - those that it must pay even before losses reach levels where Florida Hurricane Catastrophe Fund reinsurance kicks in.
And as a Citizen policyholder, you’ll also pay more in special assessments than someone with a private home insurance company after a major Florida hurricane - special charges tacked on to your annual insurance bill. In this new brave world where even governments can’t keep their promises here are some steps you should take as a Florida home insurance consumer right now: Get a Florida wind inspection done and harden your home as much as possible. Avoid Citizens Insurance Florida if you can. Look for a home insurance company with strong financials and a small geographically dispersed policy base across both Florida and other states.
Fewer policyholders will mean faster payment of your claim. Call in your insurance claim on the same day the Florida hurricane damages your home. This will make it more likely that you will get paid before your insurance company looks to the Florida Cat fund for reimbursement. Last but not least. The fact that the Florida Cat Fund is short on money has not been lost on Florida home insurance companies. They are being charged for reinsurance by an entity that has publicly stated that it can’t meet its obligations.
That means insurance companies are not getting what they paid for. You should expect Florida home insurance companies to try to buy more of their reinsurance in the private market and not from the State of Florida in 2009. And they will look to pass that cost through to you in the form of higher insurance rates. If they don’t get the rate increases they need, your Florida home insurance policy might be canceled. As the Florida home insurance crisis continues, it has never been more important for you to stay on top of the Florida home insurance market for private insurance. You never know when you might have to find a new Florida home insurance carrier.
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