Insurers prepared for new storm
By David Royse
Associated Press
TALLAHASSEE, Fla. — Hurricane Frances could add billions to the $7.4 billion insurance companies are already paying out to Florida victims of Hurricane Charley, but industry officials say changes made after historic Hurricane Andrew left them prepared to handle it.
Associated Press
Property insurers haven't had to deal with major back-to-back storms since the Florida population boomed — the last time two storms hit so close was in 1950, when the whole state had less than 3 million people. Now, 17 million live here.
Work crews place hurricane shutters on the storefront of a local hotel as Hurricane Frances approaches the coast of Florida yesterday in the South Beach section of Miami Beach, Fla.
But Andrew devastated Florida's property insurance industry when it hit in 1992, sending many companies fleeing the state and others into bankruptcy.
State and industry officials determined not to let that happen again.
They raised rates, substantially, to build reserves, and let companies charge larger deductibles to reduce the industry's risk. They also created a hurricane catastrophe fund that backs up the industry.
"We can handle it," said Sam Miller, spokesman for the Florida Insurance Council, which represents insurers. "With the $14 billion in the (catastrophe) fund that's still there and the industry's overall financing, we will pay all these claims."
The back-up fund, essentially reinsurance for the companies, will still have $5 billion in cash after being tapped for about $1 billion for Charley backup. If that's still not enough, the fund can issue bonds for up to $9 billion more.
If the fund does issue bonds, Floridians will see assessments on their policies to cover the cost.
Many say the only reason insurance companies are willing to sell insurance here is because of the fund."
Gallagher said a bigger concern is the industry being stretched in its ability to quickly process claims and help victims.
About 10,000 adjusters are already in the state trying to help Charley's victims. More will come in now.
Frances was expected to strike Florida as early as today, with winds topping 120 mph.
"Every adjuster that's anywhere is probably going to wind up in Florida," Miller said.
Bill Mellander, part of the Allstate Corp. disaster-response team, said the Illinois-based insurer already has 800 adjusters and other employees in Florida and was bringing in 600 more ahead of Frances.
"We want to keep Charley customers moving forward," Mellander said. "We don't want that to slow down because of what's happening with Frances."
Charley was the second-costliest storm to insurance companies, after Andrew, which caused $15.5 billion in insured losses.
Besides the new catastrophe fund, higher deductibles also now keep insurers' payouts lower. Instead of set dollar deductibles, most policies now have deductibles based on a percentage of the insured property, which generally require the homeowner to pay a larger portion of the damage.
For homes worth more than $100,000 insurers often now require 2 percent deductibles, meaning most homeowners would be responsible for at least $2,000 in repair costs.
For more expensive homes, the deductibles can be even larger.
But that has kept seemingly high premiums lower than they otherwise would be, Miller said.
"Andrew made us recalculate our real losses," Miller said. "But because of that we have the money in the system to cover these two storms."
