Bill Williams Residential Safety and Preparedness act

I. History of the Cat Fund In the wake of Hurricane Andrew’s losses and subsequent insurance crisis in Florida, the Florida Legislature during a 1993 special session enacted a state reinsurance program to help insurers in the event of another catastrophic storm. Section 215.555, Florida Statutes created the Florida Hurricane Catastrophe Fund, better known as the Cat Fund, in order to create a “stable and ongoing source of reimbursement to insurers for a portion of their catastrophic hurricane losses.” With losses in Hurricane Andrew in excess of $20 billion, both insured and uninsured, and numerous insolvencies of insurance companies, the State found itself in the position of having to address an insurance crisis in Florida. With potential losses in future events expected to be even higher then Andrew’s $20 million, insurers became both unwilling and unable to continue covering the State’s high exposure to hurricane effects. The Cat Fund, then, was created from “the intent of the Legislature to balance equitably its concerns about mitigation of hurricane impact, insurance affordability and availability, and the risk of insurer and joint underwriting association insolvency” (Section 215.555, Florida Statutes).

As reported in Florida Hurricane Catastrophe Fund Five Years Serving Florida: A Report 1993-1998 in Review, the statutory provisions in Section 215.555 are as follows (p. 4):

  • Require certain insurers to participate in the Fund as a condition of doing business in the state
  • Grant rulemaking authority
  • Establish the procedures for setting and collecting the reimbursement premiums
  • Establish procedures for paying loss reimbursements
  • Authorize the investment and disbursement of moneys collected by the fund
  • Authorize the imposition and collection of emergency assessments to retire the bonds
  • Authorize the issuance of debt secured by the premiums and the assessments
  • Require insurers to participate at certain coverage levels if bonds are outstanding
  • Limit debt issuance and the amount of the assessments
  • Provide for debt security if the Fund is terminated by operation of law
  • Establish an Advisory Council
  • Provide that a violation of Section 215.555 is a violation of the Insurance Code

While the Cat Fund was originally established to cover all residential and commercial property at one coverage level (75%), the program was amended in 1995 to make adjustments to both who was eligible for coverage and at what level. These changes made only residential property insurers eligible for Cat Funds, and added two new coverage levels: 45% and 90%. While these are the significant statutory provisions as set up and amended, major changes as related to mitigation occurred in 1995.

The language of the original act stated: “it is essential to the functioning of a state program to increase insurance capacity that revenues received be exempt from federal taxation.” To this end, the IRS required three changes to the Cat Fund. The Florida Senate Interim Project Report 2000-22, September 1999, “Funding for the Hurricane Loss Mitigation Program,” summarized these changes as follows:

  • An expansion of the moneys available for a wider range of hurricane loss mitigation projects
  • An initial state capital contribution from a broad-based revenue source
  • An increase in the broad-based emergency assessments that support the fund when premium revenues are insufficient.

Focusing on Mitigation

The best explanation of the changes made to the Cat Fund legislation is in the above referenced “The Florida Senate” report, quoted below (p. 2):

The act required the Legislature to annually appropriate from the fund no less than $10 million but no more than 35 percent of investment income from the prior year (a change from the prior law which allowed for up to 2 percent of premium income from the prior year to be used). The act delayed funding of mitigation programs until FY 1997-98, but expanded authorized uses for mitigation funding to include funding of local governments, state agencies, public and private educational institutions, and nonprofit organizations to support programs intended to improve hurricane preparedness, reduce potential losses in the event of a hurricane, provide research into hurricane loss reduction, educate or inform the public as to means to reduce hurricane losses, assist the public in determining the appropriateness of structural upgrades, or protect local infrastructure from potential damage from a hurricane.

Close to $28 million has been appropriated (after gubernatorial vetoes) in the last three fiscal years with the largest proportions going to disaster relief ($11,541,169) and the Residential Construction Mitigation Program ($6,821,431). Disaster related mitigation through emergency management resulted from the following events: Hurricane Opal (35%); El Nino Events (34%); Hurricane Georges (20.5%); 1998 Wildfires (6 %); Groundhog Day Storm (3.3%); Tropical Storm Mitch (1.1%); and Hurricane Earl (less than 1%).

The Residential Construction Mitigation Program focuses on a specific sample of households along the high-risk coast. According to DCA documents, the RCMP was designed with seven goals in mind.

  • To increase public awareness through an aggressive public education program;
  • To educate homeowners on practical and affordable retrofit opportunities;
  • To promote the use of sound residential retrofitting and mitigation methods and materials within the construction industry;
  • To offer an accredited retrofit/mitigation program for inspection and construction professionals;
  • To promote ongoing research and development of new retrofit/mitigation techniques and alternatives;
  • To develop economic incentives for homeowners to upgrade their homes for wind resistance and;
  • To minimize insured loss exposure, and establish more insurance credits via data base analysis.

Other mitigation projects that have been appropriated from the CAT Fund include: sand dune restoration; unified building code implementation; public school hurricane mitigation and protection – statewide; mobile home safety; and CDBG mitigation program.

The 1999-2000 legislature, however, decided it was necessary to focus the projects appropriated by the Cat Fund. As a result, statute 215.559, the Hurricane Loss Mitigation Program, was developed. This program is also known as the Bill Williams Residential Safety and Preparedness Act.

II. Bill Williams Residential Safety and Preparedness Act As addressed above, this Act creates the Hurricane Loss Mitigation Program that helps define how the $10 million of Cat Fund mitigation funding to the Department of Community Affairs should be allocated. The statute indicates that the funds should be spent in the following way: 1) 70%, or $7 million, “shall be used for programs to improve the wind resistance of residences and mobile homes, including loans, subsidies, grants, demonstration projects, and direct assistance; cooperative programs with local governments and the Federal Government; and other efforts to prevent or reduce losses or reduce the cost of rebuilding after a disaster;” and 2) 30% ($3 million) of the funds should be used “to retrofit existing facilities used as public hurricane shelters.”

The act requires that at least 40% of the $7 million appropriated for wind resistance programs of residences and mobile homes be allocated to specific projects concerning mobile homes. This allocation can include: programs to inspect and improve tie-downs; construct and provide safety structures; and provide other means to reduce loss. In the second year of funding, required mobile home funding is reduced to 30% of the total appropriation, and any further funding requires at least 20% to be used in this manner. In addition, 10% of DCA’s $7 million appropriation should be allocated to the Type I Center within the State University System “dedicated to hurricane research, to support programs of research and development relating to hurricane loss reduction devices and techniques for residences and mobile homes and relating to the development of credible data on potential loss reductions.” Concurrently, this Type I Center will additionally consult with and assist DCA with its required yearly report to the legislature.

The statute further requires DCA to develop the programs subsumed under this Act in consultation with an appointed advisory council with representatives from: 1) Department of Insurance; 2) home builders; 3) insurance companies; 4) Federation of Mobile Home Owners; 5) Florida Association of Counties; and 6) the Florida Manufactured Housing Association who is a mobile home manufacturer or supplier.

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