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Panel balks at plans to bolster storm funds
By DIANE RADO
© St. Petersburg Times, published June 30, 2000
TALLAHASSEE -- Jack Nicholson began sweating when Hurricane Floyd started pointing toward Florida last year.
As chief operating officer of the Florida Hurricane Catastrophe Fund, Nicholson knew the state didn't have enough cash to cover insurance claims should a major storm strike.
"Floyd turned, and we were lucky. But I kept asking myself what would have happened if Floyd hadn't turned," Nicholson told an advisory council to the catastrophe fund Thursday.
Nicholson and his staff proposed that Florida borrow $1-billion to bolster cash reserves set aside for a big storm. But the advisory council shot down the idea after a sprited debate with a 4-3 vote Thursday.
"It ain't worth it, folks," said Barney Bishop, a lobbyist who represents consumers on the panel. It would cost $3.7-million to set up the $1-billion line of credit, and then the state would have to pay interest on any amount drawn against it. Bishop was concerned about how that might affect homeowner rates, among other things.
The advisory council also rejected a proposal to buy a $300-million insurance policy in case Florida couldn't issue enough bonds to cover claims from a major storm.
If a big storm strikes, insurance companies are responsible for paying a certain amount of claims from their own pockets. Then the state releases money from the catastrophe fund, which was set up after Hurricane Andrew caused more than $15-billion in damages in South Florida in 1992. The catastrophe fund will have $3.64-billion by the end of the year, yet not nearly enough for a major storm. But Florida can issue up to $7.36-billion in bonds after a hurricane. Insurance Commissioner Bill Nelson says it would be highly unlikely that a storm would strike that would eat up all the money and bonding proceeds.
But the problem with bonds, according to Nicholson, is that it might take six weeks to several months to get the money, leaving people devastated by a storm waiting around. The $1-billion line of credit could be used while the state waits for bond proceeds. Rade Musulin, who represents insurers on the advisory council, said that some insurance companies have lines of credit and other mechanisms to make sure they can cover claims quickly. But others would be relying on the catastrophe fund to pay their customers until bond proceeds arrive. Money from the fund is used to reimburse insurance companies for a portion of the claims paid.
Bishop said it's not even clear how many insurance companies would need cash immediately. He suggested a survey to find out.
"I'm aghast, I'm astounded," that such a survey was not done before considering the $1-billion line of credit, Bishop said.
The advisory council ultimately agreed to get whatever information is available at the state Insurance Department rather than survey insurance companies.
The advisory council's no vote goes to the State Board of Administration -- Gov. Jeb Bush, Insurance Commissioner Bill Nelson and Comptroller Bob Milligan, which is set to consider the $1-billion line of credit and the $300-million insurance policy July 11.
© St. Petersburg Times. All rights reserved.