Many challenges exist with the Florida market, including overall rate adequacy and the continued suppressed rate level for Citizens Insurance Company (the state insurance company), but the FHCF remains a key component in keeping the market standing. As Florida moves the system to rate adequacy, the most important public policy measure needed is to provide additional risk spread and reinsurance capacity by enacting a national backstop program to support the FHCF.

We support legislation that creates a stronger public-private partnership, such as a privately funded national catastrophe backstop, to respond to large-scale natural catastrophes, including major hurricanes that would exhaust the capacity of the FHCF. The Homeowners and Taxpayers Protection Act of 2013 provides the protection Florida and states around the country need to address the inevitability of natural catastrophes. Floridians need this type of legislation enacted before the next major natural catastrophe strikes.

Reinsurance costs and availability seem to be as changeable as the weather. A storm season of low activity can temporarily lower costs and boost availability, but a major hurricane or earthquake in a densely populated urban area could cause hundreds of billions of dollars in damage and totally exhaust the capacity of the private reinsurance market.

Capacity in the private reinsurance market has a significant impact on the cost of homeowners insurance. The fact is that capacity is limited, and there is no guarantee of access to funding following a year with one or more major events. Moreover, prices for private-market reinsurance will almost certainly skyrocket again following the next series of major events.

The FHCF works well and is a needed supplement to private market reinsurance. With the passage of a national catastrophe backstop, we can make it work even better and strengthen its ability to help control the cost of homeowners insurance. The time to enact such a backstop is now.