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Insurers might find it's not nice to test Mother Nature

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© St. Petersburg Times,
published June 10, 2001

At the start of this hurricane season, Mother Nature took time out from her busy schedule and sat down with us to discuss one of her favorite toys (wind) and one of her favorite targets (Florida). Here are excerpts from that interview.

Q: Thanks, Mother Nature, for sharing your thoughts with us. Will your hurricane season this year be nasty or relatively calm for Floridians?

Mother Nature: Wouldn't you like to know. Don't you trust your own experts?

Q: Well, our human hurricane guru, Dr. William Gray, in April predicted an average hurricane season of 10 named storms with six hurricanes. But on Thursday, he changed his mind and boosted the number of named storms from 10 to 12. He also raised the number of hurricanes from six to seven and the number of intense hurricanes from two to three. Any of them coming our way?

Mother Nature: (laughing) Don't forget. My little hurricane you dubbed Andrew started with an A. That leaves plenty of letters in the alphabet. You called Andrew devastating, though I didn't even send it through downtown Miami. And I let it skip Tampa Bay entirely. But I can't dispute Gray's obvious authority on such matters.

Q: (watching a light breeze through the window) After Andrew caused a record $16-billion in insured losses, insurance companies wanted to flee Florida faster than snowbirds in May. The state had to impose a moratorium to prevent widespread cancellations of homeowners coverage. And after the state set up the Joint Underwriting Association (JUA) as our insurer of last resort, it quickly grew to become one of the largest property insurers in the state. What do you have against Florida, anyway?

Mother Nature: Hey, you paved paradise and put up a parking lot! And you could be a lot nicer to my manatees. Consider my little Andy fair warning. You call Florida the Sunshine State. I just might call it the Home of the $80-Billion Big One.

Besides, I hear that your property insurance market is improving. I hear 25 new insurance companies have finally shown the guts to enter the Florida market in recent years. Your "last resort" JUA has shrunk from 960,000 policyholders to just 70,000. Sure, Dade, Broward and Palm Beach counties are still struggling for reasonable insurance coverage, but other areas like Tampa Bay are doing pretty well.

Q: All true, Mother Nature. But it's been a long and painful lesson you've taught us Floridians.

Mother Nature: More and more people live near Florida's coasts. Sometimes they gotta pay to play. It's the same message I send via earthquakes to your country's West Coast or via tornadoes to the Midwest. You've forgotten I'm not here to entertain. I want more R-E-S-P-E-C-T.

Q: Don't bully us, Mother Nature. Our insurance experts say we're ready for, uh, almost anything you can throw at us.

Mother Nature: (chilly) Really? It's not nice to fool Mother Nature.

Q: (noticing a few gusts outside) I have it on the best authority that we are financially prepared to deal with a hurricane twice as crushing as Andrew. Our insurance companies are reasonably healthy. The JUA is prepared. The Florida Windstorm Underwriting Association, our insurer against wind damage in much of South Florida and even in coastal portions of Pinellas, Pasco and Hernando counties, is raising rates to build up its coffers. And don't forget the state's got CAT, its catastrophe fund that can sell bonds and raise billions more in an insurance emergency.

Florida Department of Insurance spokeswoman Tami Torres told me Friday that the state is "better prepared" now for a storm of Andrew's magnitude than it was 10 years ago. Florida Insurance Council spokesman Sam Miller claimed that Florida is "as prepared as any state" in the country for a major hurricane. And he said Florida could handle not only the next Andrew but also a second storm with $7-billion in insured damages. What do you have to say to that?

Mother Nature: Maybe you should thank me. Before I sent Andrew in 1992, State Farm and Allstate were fat and sleepy. Together, the two insured close to half of Florida's homeowners -- all with cheaply priced policies. Boy, did they wake up in a hurry.

Q: Without a drop of caffeine. Of course, every Floridian's property insurance premium seems to be on the rise ever since. Since Andrew, State Farm has kept its exposure steady (while raising rates), with about 26 percent of the market. And Allstate (after losing $2.5-billion from Andrew) cut back its market share from nearly 20 percent to 15 percent, in part by selling a chunk of its business to a newcomer in the state.

Mother Nature: Ah yes, Clarendon National. You know it's already No. 3 in the state with a modest 3.9 percent of the market. Isn't it nice to see more insurers share the property risk in your state? It's been a long time since the state's top five insurers -- State Farm, Allstate, Clarendon, Nationwide and USAA -- did not include the state-run JUA.

Q: Too true. But the slow revival of Florida's property insurance business has not come without a lot of financial pain to Floridians.

Mother Nature: You mean higher premiums?

Q: Yep. A.M. Best and other insurance experts say property insurance rates are likely to climb and continue to rise in the years ahead. That's because construction and property replacement costs are soaring. Property values are also rising, prompting the need for more coverage.

Mother Nature: And higher deductibles?

Q: (glancing at an uprooted palm flying by) Big time, Mother Nature. Insurers tried to hide the impact of rising premiums by raising how much policyholders must first pay out of their own pocket.

Mother Nature: And separate deductibles for wind coverage?

Q: More than ever. The 425,000 Florida policyholders who still can find wind coverage only through the Florida Windstorm Underwriting Association are paying a stiff price. And private insurers caught on a few years ago that a separate deductible for hurricane coverage, typically 2 percent of the amount of the homeowner's claim, would save insurance companies a bundle.

Mother Nature: And big insurers setting up separate affiliates to handle Florida coverage?

Q: Bingo, oh Great Nature Mom. After Andrew, State Farm, Allstate and some other major insurers formed subsidiaries to handle Florida policyholders and isolate risks from hurricanes here from their national operations. Now we really don't know if the parent insurer will bail out its Florida affiliate in the event of a financial catastrophe.

Mother Nature: (rubbing her head) JUA. Windstorm pool. CAT funds. Bond sales. Deductibles. Building codes. Corporate subsidiaries. Your messy insurance patchwork is giving me one big headache and my hurricane season is only 10 days old!

Q: (leaping under the table as the roof shears off) That's obviously all the time we have today, Mother Nature. Thanks for shooting the breeze. It's been a blast.

- Robert Trigaux can be reached at or (727) 893-8405.

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