McCollum: insurance is disaster waiting to happen
By John Johnston
Managing Editor
Whether or not he was aware of it last Thursday afternoon, by now Republican Attorney General Bill McCollum knows that the highlight of his remarks made in Boca Raton actually put him in bed with Democrat US Congressman Ron Klein (D-Boca Raton).
McCollum was keynote speaker last Thursday afternoon at the 4th quarter Palm Beach County Business Development Board (BDB) luncheon held at the Boca Raton Marriott. Characteristically, McCollum pulled no punches in telling attendees his concern about what he called a “hidden tax that’s hanging out there.”
Wearing his cabinet officer hat, McCollum said that disaster insurance “presents the greatest challenge to Florida state government.” McCollum said flatly that the current system “is an unfunded obligation of the state, and a hidden tax hanging out there.”
The “reinsurance system will be (stressed) and the public will be taxed,” McCollum said, when it becomes necessary to deal with future hurricane/flooding tragedies.
McCollum said the current system finds the state with potential liabilities of $29 billion, and only $8 billion of reserve and borrowed funds on hands to deal with the liability. It’s at that point when taxpayers would be called upon the make up the difference, McCollum said, “and we need to work our way out” of that system.
And that’s when he climbed into bed with Klein, by adding, “We need to reinvogorate the private sector to get involved in the insurance problem.”
Separately, McCollum said that much of Florida’s pension fund investments are “not going to Florida – and that needs to change.”
There are pension fund dollars invested in the stock market, and in ownership interest in Florida’s commercial real estate market, McCollum.
What’s missing for the investment equation, he said, was pension fund money being used for Florida projects needing first stage venture capital.
Florida’s entrepreneurs need “to find ways to get more capital,” he said, “and our pension fund needs to be involved in that.”
Florida’s pension fund in the largest in the nation.
Disaster Insurance
Late in 2007, Congressman Klein authored a bill that the US House approved which “provides a national solution to the growing crisis in the availability and affordability of homeowners insurance,” Klein told the Boca Raton News. The strategy is “opt in” rather than force funding to deal with the aftermath of nature’s catastrophic events, Klein said
Klein said the entire approach to dealing with insurance for catastrophic events is changed with this new bill. Previous approaches all included various forms of “everyone pays,” Klein said, through a portion of all insurance premiums being set aside to finance a national catastrophic insurance fund.
That approach has always failed, Klein said, because legislators from “Iowa and elsewhere” never saw the fairness of voters in those states paying for essentially subsidizing the lifestyles of those living in catastrophe prone states such as Florida, Texas and California.
“Opt In”
The new bill changes all of that, Klein said, by creating an “opt in” system – and here is how it works.
The bill provides a way for state-sponsored insurance funds to voluntarily bundle catastrophe risk with one another, “and then transfer that risk to the private markets through the use of catastrophe bonds and reinsurance contracts,” said Klein.
“By utilizing new strategies and an innovative capital market approach, the bill allows investors to assume some of the risk currently held by the states, in return for an interest payment,” Klein said, adding:
“The bill also provides for loans that could be extended to any state that faces a significant financial shortfall following a natural catastrophe. These common-sense provisions will ensure that states are able to provide for their citizens in the wake of a devastating event.” The bill is now in the Senate Banking, Housing and Urban Affairs committee.
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