Florida Set to Handle Storm of Claims

Major insurers are capable of weathering the losses even if Hurricane Ivan becomes the third monster storm to batter Florida in a month, insurance and regulatory sources said Thursday.

The industry and the state worked out ways to reallocate financial risks after Hurricane Andrew devastated Florida in 1992, these experts said. The changes included setting up a state-sponsored reinsurance company -- essentially a firm that insures the insurers. A separate company -- now Florida’s second-largest property insurer -- was established to insure property against wind damage in the most vulnerable areas.

“We think the insurance industry will hold up well overall,” said Bob Lotane, spokesman for Florida’s Office of Insurance Regulation. Even if Ivan causes significant damage in Florida, he said, “Larger carriers and carriers that have been here awhile still should have adequate reserves.”

After killing at least 20 people in the Caribbean, Ivan was headed Thursday for Jamaica with winds as high as 150 mph. The storm, which could reach Florida as early as Sunday, had the potential to add billions of dollars in insured losses to the $6.8 billion caused by Hurricane Charley last month and as much as $4 billion by Hurricane Frances last weekend.

Adjusted to 2003 dollars, the insured loss from Hurricane Andrew totaled $20.3 billion. Eleven smaller insurers became insolvent and were unable to pay claims, recalled economist Bob Hartwig of the New York-based Insurance Information Institute. Other insurers were downgraded by ratings agencies. Hundreds of thousands of policies were canceled or threatened with cancellation. To cap the debacle, insurers refused to write new policies in coastal areas.

“Obviously it was something we needed to address head-on,” Hartwig said.

The industry and state regulators had to reassess the fundamentals of risk in a state with 1,100 miles of coast fronting two huge bodies of water and squarely in the track of Atlantic hurricanes. Among the resulting changes:

* Formation of the Florida Hurricane Catastrophe Fund, the reinsurance company. Companies looking to limit risk have paid into the fund since 1993, and it now holds about $6 billion; this will be the first year it has been tapped, Hartwig said. The industry pays the first $4.5 billion in damages from a hurricane and then the fund takes over. If the cash reserve runs out, the fund is authorized to issue as much as $9 billion in bonds that would be repaid by assessing all Florida property owners.

* Creation of Citizens Property Insurance Corp., the company that provides windstorm insurance and other coverage to people in high-risk coastal markets who can’t obtain it from private insurers. CPIC has about 10% of the premiums in Florida’s homeowner market, second to State Farm Florida Insurance Co., which has a 21% share.

* Change in the deductibles that policyholders must pay before their insurance kicks in. Instead of a fixed amount, most now pay a percentage of the damages, typically 2%, in deductibles. The change will save insurers “hundreds of millions of dollars” this year, Hartwig said.

Despite the changes, regulators believe that a few smaller insurers may run into trouble, especially if Ivan causes severe damage, “but no companies you would have heard of in California,” Lotane said.