Florida's insurance commissioner is lobbying for a federal letter of credit (L/C) to make sure that insurers would be able to pay all claims quickly if a severe hurricane hits the state.

Officials in the hurricane prone state are concerned that the financial crisis could leave the Florida Hurricane Catastrophe Fund (FHCF), and insurers associated with it, unable to raise the credit they would need to pay a big slew of claims.

Shortfall

State officials say the FHCF has about US$7.6 billion available while private insurers could probably chip in about the same amount, making a total of around US$15 billion available if disaster struck.

The problem is that in today's financial markets, the fund would probably be able to raise around US$3 billion in additional credit, which added to the US$15 billion already available may still not be enough to meet all claims.

A funding shortfall of around US$18.4 billion is possible, according to official estimates.

Options

One option being explored by State Insurance Commissioner Kevin McCarty is a federal L/C that would essentially guarantee that credit would be immediately available for claims to be met.

McCarty has been to Washington to lobby for a federal L/C.

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