Inside view - Why hard cash beats hope any day.

(From Reinsurance)

Who among us does not empathise with hurricane-battered Floridians? Florida homeowners have seen 20-plus percent rate increases on their homeowners' insurance bills in recent years, and the average premium in Florida is now about double the average for the nation as a whole.

Early forecasts predict yet another 'above average' windstorm season for the Sunshine State. With experts saying the region is in the midst of a cycle that will increase both the frequency and severity of storms for decades to come, it is no surprise that the state's homeowners are ready to leap at any relief in sight. It's also no surprise that lawmakers and politicians have seized the cause with gusto.

As a result, earlier this year, Florida's new governor signed into law a bill that aims to reduce homeowners' insurance rates for constituents on this vulnerable sub-tropical peninsula. The legislation is long and detailed, but given space constraints, I will restrict my comments to the provisions dealing with the Florida Hurricane Catastrophe Fund (FHCF), the state-run reinsurer.

The law significantly expands the cover provided by the FHCF. Private insurers can now buy increased limits of reinsurance from the fund at below-market rates, but are obligated via new filings to pass on the savings to their homeowners' policyholders. Policyholders enjoy cheaper insurance, with losses to be covered by the limited resources of the FHCF and post-event issuance of bonds.

Only time will tell how successful the legislated solution will be. Also unclear is exactly how much savings consumers will garner, and when. It is obvious at the onset that the new measure is markedly different from the time-tested mechanism the modern world has cultivated for managing catastrophic property losses, the global insurance and reinsurance markets.

Differences