Florida’s Financial Exposure from Its “Self-Insurance ” Programs: The Citizens Property Insurance Corporation and the Florida Hurricane Catastrophe Fund

Damages from recent hurricanes raise important questions about Florida’s potential taxpayer risk exposure when another storm hits. Key among them is whether Floridians must either choose between affordable, state-provided windstorm insurance or windstorm insurance from more clearly solvent private insurers. Affordable coverage means little if the provider becomes insolvent in a crisis. The financial stability of property insurance demands our attention because modern economies cannot function without it, and storm victims depend upon its payouts for recovery. An insurer’s ability to pay claims depends on the entity’s financial position, namely liabilities and liquid assets. In 2009, both Citizens Property Insurance Corporation (“Citizens”) and the Florida Hurricane Catastrophe Fund (FHCF) have faced enormous potential shortfalls, despite the absence of 2006-08 landfalling storms, because of limiting bonding capabilities. A 100-year probable maximum loss would have left Citizens with a deficit of $10.6 billion and FHCF with a shortfall of $24.9 billion. Assessments of $35.5 billion, spread over 30 years, at an assumed interest rate of 4%, are $117.9 billion. Annual payments to retire this principal and interest would be $3.9 billion. The FHCF’s estimated payment capacity for 2009-10 is $16 billion, to be funded with $8 billion of liquid resources and $8 billion of estimated post-event bonding. The estimated potential deficit is $7.2 billion. State officials are wise to consider Rade Musulin’s (1997, p. 2) question, “Can our children afford ‘affordable ’ insurance?” Efforts to limit the cost of Citizens and FHCF coverage mistake a risk subsidy problem for what is actually a risk poolin