Remember Hurricane Wilma? The Damage is Still Not Paid For

Remember Hurricane Wilma? The Damage is Still Not Paid For

March 7, 2010 18:15
by J. Wylie Donald

There was scary news out of Florida at the end of last month. Insurers were lobbying the cabinet for an increase in catastrophe fund insurance policyholder fees. This is the surcharge Florida regulators place on every automobile and property policy to pay for the Florida Catastrophe Fund, which needs up to $710 million to pay for 2005 (sic) claims that are still coming in. The Fund managers sought to increase the current surcharge from 1% to 1.3% of premiums.

The increase was rejected by the Florida cabinet, ostensibly because of concerns over fraud. Seems public adjusters in Florida are too effective and have precipitated an unbudgeted increase in payouts from the Fund. The explanation for the increase in claims and payouts is that fraud is being carried on. Cynical observers cite a different reason. Governor Crist is running for the Senate and is not going to be tagged with increasing the cost of insurance.

Whatever the reason, what should really be cause for concern is that the Fund may need an additional $710 million.

I have blogged repeatedly and skeptically on the beach pools and wind pools. Turns out I am not alone. Zurich Insurance Company published a White Paper last summer that makes the point far more eloquently than I did.


In The Climate Risk Challenge: the role of insurance in pricing climate-related risks,, Zurich posits that in addressing climate change, there is a great need to engage the insurance industry's skill in managing risk. The trick is how to engage an industry whose business is protecting private assets, so that that protection furthers the public good.

Zurich points out that this has been done before. Fire protection codes and vehicle safety requirements are two areas of note. Following along in that vein, climate-friendly requirements that are built into zoning and building codes, such as hurricane-proofing structures, mandating energy efficiency, and restricting construction in flood -prone areas, can be supported by insurance products, which will bring market forces into play.

However, as Zurich notes, "The ability of the insurance industry to assist public policy-makers in the effective and efficient implementation of climate change policy is to a large extent dependent on [policymakers'] willingness to resist the temptation to distort markets in a manner that interferes with the role of and ability of insurers to send price signals about risk." Distortion seems rampant in Florida. In the fifth year after Hurricane Wilma, the Florida Catastrophe Fund still lacks sufficient funds to pay for those claims. Perhaps more significantly, the procedure in place to pay for those losses cannot do so.

Zurich's tag-line is "Because change happenZ." I would amend that. "Because climate change is happening." Policymakers need to tap into the experts who manage the balance between risk exposure and financial sustainability. Until the Florida insurance market reflects true price signals for risk, those experts are very likely to remain sitting on the sidelines and Florida's hurricane risk effectively uninsured.

Climate Change | Flood Insurance | Insurance | Weather

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