Don't Forget Insurance When Preparing for the Hurricane Season

Jun 1, 2012

Today marks the start of hurricane season, and officials are reminding Floridians of the importance of getting prepared by knowing evacuation routes, having a plan for their pets and making sure they have supplies on hand.  But  some say one thing citizens might not be prepared for is the potential insurance policy assessments they could receive if a storm does hit.

­­­­Floridians could be on the hook to help pay for a hurricane recovery if the state-backed property insurer Citizens and the state’s hurricane catastrophe fund, or CAT fund, are tapped out. And Insurance Consumer Advocate Robin Westcott said she doesn’t think a lot of Floridians know that.

"When that’s exhausted, we rely almost entirely on our ability to bond, which means the assessment that backs those bonds has to be collected," Westcott said.

Assessments, used to pay off those bonds, are paid through all types of insurance—like home owners and even auto insurance. That means almost everyone in Florida could end up paying off the cost of claims from a major storm. So Westcott created an updated insurance assessment calculator that takes a look a how much citizens insurance rates could rise.

“All of us have this liability. It is out there. It will be on all of our policies. Yes, it is capped and can only be levied at a certain percentage each year, but we need to understand where we’re tracking as a state on this,” said Westcott

Westcott said part of her job as consumer advocate is to educate the public. And she said this might be the kind of thing people would want to keep in mind while budgeting. She said a category four  or  five hurricane that hits in a major metropolitan area, also called a 1-in-100-year storm, would wipe Citizens and the CAT fund out. But she said something smaller—like a 1-in-25-year storm would probably deplete the funds and lead to an assessment too.

"And then what would happen if we had that next storm, which the next storm would not have to be a 1-in-25 year event, for then again more triggering of more assessment dollars, because there would be nothing left to pay those claims it would have to be generated through raising revenue with the assessments,” she said.

Westcott said one way to decrease those assessments is to incentivize homeowners to harden their homes with added protections like storm shutters. Meanwhile, Citizen Property Insurance’s Interim Director Tom Grady is looking for ways to reduce the number of policies his company handles, an effort to reduce the risk the state potentially faces. Right now the insurer holds about 1.5 million policies.

During a “listening tour” Grady has been making around the state, he told the News-Press in Fort Myers  he thinks a lot of people don’t realize they’re often not paying for the full cost of their insurance policy.

“We think its important for the people who pay for the insurance and for the people who don’t pay for the insurance to know how this works and to know that they have exposure at citizens," Grady said.

Grady said Citizens is ready for a storm, but agrees a big storm could lead to assessments.

“We can pay claims of almost 20-billion dollars, with borrowed money and with reinsurance that would require assessments. That would require sir charges on policy holders and potentially on others depending on the level of storms," Grady said.

And Executive Vice President of the Florida Insurance Council, Sam Miller, said while nobody wants to pay assessments, the mechanism does set Florida up to be ready for a tougher season if one were to come.

“We can handle probably more than any other state in the country. If its you know, one storm, and I don’t know what those precise damages would be, but maybe we have one category two verging on a three, well maybe Citizens and the CAT fund can handle that, but if  it’s something worse than that there will be assessments, but at least it will still be handled. We’ll pay those claims,” Miller said.

Then again, Miller points out, despite the predictions, it’s hard to tell what will happen during hurricane season.