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Hurricane Charley

Tab could hit $14-billion, insurers say

Unlike with Andrew, companies will likely be able to tap the state's hurricane catastrophe fund to help pay claims.

By JEFF HARRINGTON
Published August 17, 2004

Call it Andrew Jr. - with an exclamation point.

On Monday, three days after Hurricane Charley ripped through Florida's midsection, insurance industry experts came out with their first estimates on insured damages: as much as $10-billion to $14-billion. The lowest estimate: $6-billion.

That makes Charley the second costliest disaster to ever strike Florida, behind the $19-billion in insured damage wrought by Hurricane Andrew in 1992, yet far worse than the $2-billion toll left by 1995's Hurricane Opal.

Among the estimates:

Munich Re, the world's largest reinsurer, estimated the total value of insured losses caused by Hurricane Charley between $7-billion and $14-billion.

AIR Worldwide Corp., a Boston-based risk modeling company that helps corporations assess catastrophe risk, pegged insured losses between $6-billion and $10-billion.

Neither estimate include uninsured damage to homes and vehicles, which Munich Re said could push losses closer to $20-billion.

Florida insurers hinge their expectations on yet another estimate likely due out today by the Insurance Information Institute.

Institute economist Bob Hartwig preached caution as he was still crunching numbers late Monday. "There seems to be an upward drive in the estimates as the day goes on," he said.

Hartwig expects the total number of claims to be less than 300,000, certainly far shy of the 600,000-plus claims triggered by Hurricane Andrew. "It's clearly not another Andrew," he said. "You don't have the same scenes of devastation as there were with entire blocks of single-family homes that were leveled."

In at least one way, Charley was worse than Andrew.

Hurricane Andrew cut through a thin slice of Florida, south of Miami to Homestead. Charley, in contrast, kept much of its strength as it traversed in a 90-mile wide zone across more than 200 miles of Florida before exiting the state via Daytona Beach.

Because of that distinction, Hartwig said, insurers this time are having a slow go assessing damage.

The shock to insurers could have been much worse. Insurance companies are being spared because homeowners will pay a bigger slice of the rebuilding tab out of their own pocket than they would have before.

Under Florida law, policyholders are subject to paying a 2 percent deductible for hurricane damage if their home is valued at more than $100,000. That translates to several thousand dollars for many owners. Insurers also are expected to receive support through the state's hurricane catastrophe fund (or CAT Fund), created after Hurricane Andrew to reimburse insurers for large disaster.

The CAT fund kicks in to begin reimbursing insurers after they have paid out $4.5-billion in claims. The fund has $5-billion in cash and has bonding authority to pay out up to $15-billion, increased from $11-billion by state legislators in the last session. The fund is supported by payments from insurance company reserves that, in turn, have been bolstered by huge rate increases in Florida.

On Monday, insurers were still reluctant to predict how many claims they face.

State Farm, which insures about one in every four Florida homes, reported about 4,250 auto claims and a little over 35,000 homeowners claims had been filed by midday.

Like many major carriers, State Farm has dispatched mobile units to affected areas and was cutting checks for up to $5,000 apiece to cover emergency needs such as temporary housing.

After Hurricane Andrew, many homeowners waited months to rebuild; in some cases, policyholders still hadn't been reimbursed six years later.

Comparisons with Andrew fall short, however, because Florida's insurance industry has been vastly revamped in the past 12 years. Dozens of insurance companies went insolvent or fled Florida in Andrew's wake; that isn't expected this time.

That's because homeowners insurance companies are stronger than before after reducing their risk levels in the state and more than doubling rates in many cases to shore up their reserves. This may be a year of losses for individual insurers, but the companies have been financially strengthened after being spared a major hurricane for years.

Plus, they take solace in Florida's catastrophe fund. For instance, State Farm said the claims payout from company coffers will be limited to $200-million; claims beyond that will be paid out of the CAT Fund and various reinsurance contracts State Farm holds.

* * *

Information from Times wires were used in this report. Jeff Harrington can be reached at harrington@sptimes.com or 813226-3407.

[Last modified August 17, 2004, 00:05:09]

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