Governor Rick Scott said Tuesday that he supports shrinking Florida's hurricane insurance backup fund even though that would raise premiums.
Scott also said he sees no need to abolish the state's mandatory no-fault automobile insurance system, which has been riddled with massive fraud. Scott said he's confident lawmakers can find a way to fix the system.
The governor and Florida Cabinet took no action after listening to a proposal for downsizing the Florida Hurricane Catastrophe Fund to eliminate a potential $3.2 billion shortfall.
Later though, Scott said he supported the idea.
"It's shrunk already," Scott said. "We can't borrow the money. ... I want to spend more time on that proposal, but I think we do need to reduce the size of the 'Cat Fund.'"
Cat Fund chief operating officer Jack Nicholson told Scott and the three Cabinet members that due to volatility in the world finance markets, the state would be unable to find investors willing and able to buy enough bonds to help meet its coverage goal of $18.4 billion.
Insurers including the state-backed Citizens Property Insurance Corp. can get reinsurance through the Cat Fund at lower rates than in the private market.
The fund, though, has only $7.1 billion in cash. That's expected to increase to $8.4 billion if Florida finishes the year without getting hit by a hurricane.
To make up the difference, the fund would have to borrow the rest, but Nicholson said it no longer can expect to find buyers for the full amount, hence the estimated $3.2 billion shortfall.
Nicholson said the fund probably could sell no more than $7 billion in bonds. He recommended that the Cat Fund's coverage goal be reduced by $5 billion, which would require legislative action.
"The state is taking a risk today that it doesn't need to take," Nicholson said. "You've got a private insurance market. It has the capacity today to take that risk."
Private reinsurance, though, would cost more. A preliminary analysis shows the down-sizing proposal would increase premiums for homeowners, businesses and other consumers by 10 percent over seven years, Nicholson said.
Scott said higher rates would be worth the trade-off.
"Consumers actually want real insurance," Scott said. "They don't want to have insurance that they know that no one can write the check. And basically right now if the Cat Fund can't bond, then people are buying insurance believing that they're going to get paid when they're not."
The Cat Fund repays its bonds through special assessments on almost all insurance policies sold in the state, including auto.
Scott and Chief Financial Officer Jeff Atwater held a news conference to urge the passage of legislation that would stop auto insurance fraud they say is costing Florida insurers and motorists $900 million a year.
They did not, however, offer specific suggestions. One option lawmakers are considering is to abolish what's known as Personal Injury Protection, or PIP coverage, but Scott said he doesn't think that's necessary.
"We'll see what comes through the Legislature," Scott said. "Right now I believe it can be fixed."
Motorists now must buy PIP insurance that provides $10,000 in coverage for injuries suffered in traffic accidents regardless of who is at fault.
Officials say the system is being abused through staged accidents as well as claims for unneeded health care services. They also blame lawyers who often seek fees more than the $10,000 limit even though no-fault was supposed to eliminate or reduce the need for ligation.