This analysis of Florida’s experience with public (re)insurance programs for residential disaster risk provides insights for policymakers in other states as well as discusses the implications for potential future costs to Florida policyholders.
- Disaster loss financing in Florida is provided by the state’s Citizens Property Insurance Corporation and the Florida Hurricane Catastrophe Fund (which cover wind-related disaster events), along with the private market for residential property insurance.
- Unusually for a market of last resort, Citizens is a dominant insurer in terms of market share, far exceeding the size of residual markets in any other US state.
- The FHCF has a unique reinsurance role: it is a state tax-exempt trust fund in which all insurers writing residential property insurance in the state are required to participate.
- Citizens and the FHCF, because of their size and heavy dependence on debt for funding losses, provide insights and lessons learned for managing the exposure and claims-paying capacity of public insurance entities.
- Experience suggests that the focus should be insurance availability, financial solvency for the system, and market stability rather than maximum affordability.
- When practicable, private market options for enhancing capacity, such as private reinsurance and insurance-linked securities, should be considered.
- The modeling of catastrophic losses on a system-wide basis can be beneficial for understanding how the system is stressed as well as how to avoid “clashes” among entities regarding the issuing and financing of debt for funding large losses.