Florida's Hurricane Fund Retention Formula Inflates Insurance Premiums

Florida's property insurance market shows signs of recovery with new insurers entering the market and reinsurance prices declining.

However, homeowners face high premiums despite these improvements. A key factor is Florida's state-run Florida Hurricane Catastrophe Fund (FHCF), which has an automatic retention formula that influences how much risk insurers retain before purchasing expensive global reinsurance. Since 2010, the retention threshold has progressively increased from $4.5 billion to $11.3 billion by 2025, pushing insurers to buy more costly external reinsurance, which is reflected in homeowner premiums.

This automatic increase has not adjusted to prevailing high global reinsurance costs, resulting in higher premiums for consumers. The FHCF's retention acts as a deductible for the state, and its premium formula charges significantly less than private reinsurance, which suggests an opportunity to recalibrate the system. By resetting the retention level back to $4.5 billion, the FHCF could build greater reserves and reduce reliance on expensive reinsurance.

This change could lower homeowner premiums by around 5% statewide without major legislative action. While this adjustment may increase the FHCF's payout frequency slightly, the trade-off could enhance long-term affordability and market stability. The current high retention setting is the result of policy inertia rather than deliberate design, and addressing it could support sustainable insurance affordability as Florida's private market stabilizes.