Small insurers face big fight with Hurricane Irma

Florida’s insurance market has faced a gauntlet of storms before – and it struggled to cope

Small insurers face big fight with Hurricane Irma

Insurance News

By Lyle Adriano

U.S. Air Force photo/Tech. Sgt. Lindsey Maurice 

As Hurricane Irma impacts Florida, concerns have grown as to whether the state’s insurance market can handle a potentially powerful storm – especially now when only small firms and a state insurer of last resort are writing policies in the region.

The state’s insurance market almost collapsed in 2006 after facing a gauntlet of storms – some of which were considered the costliest weather events in US history. While Hurricane Katrina is the most widely remembered for the sheer amount of damage it caused, other storms battered Florida between 2004 and 2005: Charley, Frances, Ivan, Jeanne, Rita and Wilma. As a result, many major national home insurers shed policies in the state after regulators and lawmakers criticised them for raising rates following the storms.

After the large insurers dropped home policies, state leaders turned to Citizens Property Insurance to provide coverage. The state insurer became the largest in the state with almost 1.5 million policies in 2011.

Some 50 small to midsize insurers also came into the picture to help fill in the gaps left behind by the major insurance companies. These insurers are so popular, that Florida’s top 20 market share list for homeowners’ insurance is dominated by relatively unknown carriers.

Experts are concerned that the current insurance system has never had a real-life test of its resilience, especially since it has been 12 years since a severe hurricane event hit Florida.

“The truth of the matter is a Category 4 or 5 hurricane in a heavily populated area is a major stress test of everything [because] the destruction is almost unimaginable,” Joseph Petrelli, president of ratings firm Demotech, told The Wall Street Journal.

Citizens and its sister organization Florida Hurricane Catastrophe Fund have built up their claims paying ability to US$9.9 billion and US$17 billion, respectively. Also, many of the other small carriers have a surplus of US$3.9 billion (as of March), and are required by state law to purchase reinsurance.

Some are confident that Florida’s insurers are more than capable of handling the damages Hurricane Irma could cause.

“There will be losses, there will be a lot of heartache,” said Paresh Patel , founder and CEO of HCI Group, one of the many small insurance firms serving Florida. “[But the storm] is happening in as good an environment as any can reasonably expect.”

Related stories:
Leading US insurers stop issuing auto policies as Hurricane Irma looms
Why Berkshire Hathaway won’t face deluge of Harvey claims


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