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Reforming The Hurricane Catastrophe Fund, Experts Urge Reforming The Building Code


Two bills – one predicting storm damage and another dealing with storm insurance – passed through the House Government Operations Appropriations Subcommittee this week. But hurricane experts say, more than better insurance, Florida needs better buildings to withstand the storms.

A big hurricane hits Florida and insurance rates rise. That’s a simple cause and effect Floridians probably know better than most. But many Floridians may not know there’s something called the Florida Hurricane Catastrophe Fund to insure the insurers. It’s a state-run reinsurance – the insurance for insurance. But there’s not enough money in the fund to cover the insurers’ losses in the case of a big storm.

“The result is that we have sold phantom reinsurance. We sold reinsurance that we knew could not be re-paid,” Rep. Bill Hager (R-Boca Raton) and sponsor of the bill to reform the Hurricane Catastrophe Fund said, “The global rating entity for insurance companies, as many are aware, is AM Best. AM Best has refused to give reinsurance credit for the phantom portion of the reinsurance policies that we issue.”

One big storm and the fund is wiped out. Any insurance companies insured by the fund would go down with it. Hager’s reform bill would lessen the amount the fund would have to pay out from 17 billion down to 14. This would reduce the amount of reinsurance the fund sells meaning some insurance companies would buy their reinsurance from other sources possible raising rates slightly. This is to keep property insurance in Florida above water and it should work. But what are the chances of hurricanes in the future?

“Data does show that we have cycles of hurricane seasons where they’re above average and season where they’re below average. In 1995 we started the 30 year active cycle. So we’re about 15 years into this 30 year cycle of above average hurricane season. And if this cycle continues that means about another 15 years of above average season,” Erik Salna, Associate Director of Florida International University’s International Hurricane Research Center said.

The center creates the hurricane damage assessment model Florida’s Office of Insurance Regulation uses for determining fair insurance prices. So it would seem Rep. Jeanette Nuñez’s (R-Miami) bill – also heard in the subcommittee – to improve the model is practical. This would allow for better cost calculations and insurance prices. But Salna said, “You have five categories, but a hurricane is a hurricane is a hurricane. Sandy was a category one, Isaac was a category one, but look at what they did. Look what Sandy did.”

He says steering currents out in the Atlantic are Florida’s saving grace. The currents side-swipe hurricanes to push them back out to sea. But if you want to know what it looks like when the steering currents fail, “In ’04 and ’05 the steering winds were different. They couldn’t steer away and we were just blasted by many storms,” said Salna.

Four hurricanes hit Florida in 2004 and another three in 2005. Salna is warning there will be another back-to-back hard hitting season without steering currents to protect the coast. He says Florida needs to think of mitigation strategy so property isn’t damaged in the first place.

“The good news is we get it. We know what mitigation is. We now have technology and construction techniques that tell us how one building can withstand a hurricane better than another. Moving forward is now making it happen,” said Salna.

Now, he says, it’s just a matter of bringing together all the parties involved from politicians down to construction groups.  And not just for Florida, but all along the east and gulf coasts where hurricanes are a serious threat.