Weather | Sports | Forums | Comics | Classifieds | Calendar | Movies
JEFF HARRINGTONChanges instituted after Hurricane Andrew leave the industry better prepared for a big storm.
Cost estimates for Hurricane Charley are still unsettled, yet insurance executives and state regulators remain confident the total will not be high enough to trigger residential rate hikes or an industry shakeup.
But they do anticipate some fallout for a storm expected to have caused up to $14-billion in insured losses. Commercial premiums could rise, some smaller insurance companies may pull out of the hardest-hit region and Floridians across the state eventually may have to pay a small part of the cost through assessments.
The reason huge rate hikes are in check is because Florida's insurance system, vastly revamped after 1992's Hurricane Andrew, has been waiting for a disaster like this.
"This is exactly the sort of storm that the 100 percent rate increases we implemented after Andrew put us in a position to handle," said Sam Miller, executive vice president of the Florida Insurance Council, which represents insurance companies statewide. "If all we have is this storm over the next two or three years, there will be little impact on rates, (insurance) companies are not going to non-renew policies, companies are not going to go out of business."
The most he predicts is that a few small companies hit hard by Charley may pull out of south central Florida.
After Andrew, 11 insurers went insolvent. Remaining insurers not only hiked rates but also cut back their exposure statewide by dropping some customers. Picking up the most risk was Citizens Property Insurance, the state-run company that covers property owners who cannot find insurance in the open market.
The result is that rates today are based on a model that factors in a storm the size of Charley occuring twice in a decade.
"This is not a surprise," Miller said. "This is not a storm that shows the rates are too low. This is a storm that shows the rates are where they need to be."
State Farm, the largest insurer in south central Florida, said 49,799 homeowners' claims and 6,891 auto claims had been lodged by midday Tuesday. But spokesman Tom Hagerty said he doesn't expect any immediate impact on rates.
Less certain is the impact on commercial insurance rates.
Bob Lotane, a spokesman for Florida's Office of Insurance Regulation, said private reinsurers are expected to raise rates and said "we could see some pass-alongs" to commercial carriers and their policyholders.
Whether Charley will trigger assessments on taxpayers across Florida is still fuzzy. Assessments are possible in two ways:
If claims to the state-run Citizens Property exceed the agency's $1.6-billion in cash-on-hand, homeowners may be assessed. As of Tuesday, Citizens anticipated claims of about $1.2-billion, which means an assessment would be unlikely, Lotane said.
If costs from Charley exceed its available cash, the Florida Hurricane Catastrophe Fund (the CAT Fund) can borrow up to $9-billion in bonds to reimburse insurers. Those bonds would be paid off through surcharges on most insurance premiums statewide (auto, commercial and surplus lines as well as homeowners).
Early estimates of insured damages from Charley range from $6-billion to $14-billion. If residential losses are in the double digits, the catastrophe fund may have to tap taxpayer wallets.
"The magic number for us (to issue bonds) would be around an $11-billion residential loss for Florida," said Jack Nicholson, senior CAT Fund officer. "When we get about 95 percent of our cash exhausted, that's the real trigger."
Miller of the Florida Insurance Council doesn't see reaching that threshold with Charley.
But he agrees with the state and other insurers on one thing: All bets are off if another major storm strikes this season.