The 2012 Florida Legislature is rapidly approaching the end of its session, and the lawmakers there have yet to decide on a path for the reform of the Florida Hurricane Catastrophe Fund (nicknamed the “Cat Fund”), without which, the state will be left at a high degree of risk.
Without arranging the Cat Fund before the end of session, all it would take is one sizeable hurricane to rip a tremendous chunk out of the state finances, as hundreds of thousands, if not millions of legitimate claims are made, but are left unpaid. For Florida residents, this could lead to utter and complete ruin.
The Florida Hurricane Catastrophe fund is a reinsurance coverage provided for the property insurers in the state, including the state-run Citizens Property Insurance Corp., which has the largest number of policyholders in Florida. This is a required protection for every insurance company in the state.
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However, the Cat Fund is different from private reinsurers, in that it is not legally required to have the resources that would be necessary to make the payments for the claims it is forecasted to receive. Therefore, it may be left without the funds to meet its promised payments.
In fact, the managers of the fund have already said that all it would take was one bad hurricane season, and the Cat Fund will be faced with a debt of almost $3.25 billion. This, according to Kevin McCarty, the Florida Insurance Commissioner, will mean that almost half of the 50 large insurance companies in the state would not have adequate resources to be able to make their claim payments, pushing them into a process of administrative supervision which is often compared to a bankruptcy restructuring.
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