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HURRICANE NEWS UPDATE
The storms have subsided and now the damage is being assessed. The swath
of damage ranges from agriculture to politics.
• Bahamas:
Minimal damage in Nassau and Paradise Island. Nassau’s Sandals Royal
Bahamian and SuperClubs Breezes are to reopen. Damage on Grand Bahama
Island is severe, and major resorts are closed for repair.
• Georgia: The peach state is also
the largest producer of pecans. Georgia, which commonly harvests 120 million
pounds of pecans annually, lost an estimated 50 percent of its pecan crop.
• Alabama: Took a direct hit from
Hurricane Ivan, lost 80 percent of its total crop.
• Florida: Of the 2.2 million
claims associated with the four hurricanes, about 1.7 million are in Florida.
About 78 percent of the claims and 85 percent of the losses are in that
state.
Miami: Damage to Florida’s $62
billion agricultural sector from the worst hurricane season in decades
will probably be around $3 billion when all the toppled citrus trees,
shattered greenhouses and fallen fruit are counted, the state government
has estimated.
Punta Gorda: Every structure in the
city sustained some form of destruction.
ONE IN 5 HOMES IN FLORIDA
SUFFERED SOME DAMAGE.
Gov. Jeb Bush and the governor’s cabinet has moved to prevent insurance
companies from dropping customers whose hurricane-battered homes have
not been repaired.
The emergency rule bars insurers from canceling or not renewing homeowners’
policies until 60 days after repairs are done. Chief Financial Officer
Tom Gallagher, who proposed the rule, said the owners of storm-damaged
homes and businesses can’t get insurance and an extraordinary demand
for construction work has made repairs slow and difficult.
The rule is aimed at helping the unluckiest homeowners in the state, whose
properties were hit repeatedly, which triggered multiple out-of-pocket
deductibles from their insurance policies.
Florida is considering a “seasonal deductible.” Policyholders
would be subject to one deductible each storm season, covering all events.
Don Leggett, IHPA insurance chairman, said “Florida would be the
only state issuing policy deductibles on a seasonal basis rather than
based on occurrences. If the measure passes, the insurance industry will
have to make a rate adjustment.” Leggett predicted higher premiums
as a result. “Currently, the insurance carriers are paying billions
of dollars in claims, and to think that the industry is going to accept
the additional risk of multiple hurricanes without an increase in premium
is unrealistic.”
In Florida, nearly 1.2 million residential claims have been filed as a
result of the four storms, including 108,000 policies with more than one
claim. More than 29,000 policyholders face multiple deductibles, at a
cost to consumers so far of $54.4 million. It is these double deductibles
that are at the heart of the debate.
The first level of discussion began at a hurricane symposium sponsored
by the building officials of Florida on November 29 in Maitland, FL. The
building officials called the meeting to share success stories and failures
associated with the difficult storm season. IHPA code consultant Joe Belcher
and Leggett attended and pushed the idea that designing for internal pressure
is not as cost effective as been reported by several trade associations.
SPECIAL SESSION OF THE FLORIDA LEGISLATURE
IN DECEMBER
The next major public meeting was the special session of the Florida legislature
with new Senate President Tom Lee. The former senate president, Jim King,
has been receptive to changing the building code or at the very least
to making the buying public aware of what designing to internal pressure
would mean to them in the event that a major hurricane impacted a dwelling
built after 2002. Doug Thomas joined Belcher and Leggett in Tallahassee.
IHPA board members Gene Enyart and Thomas started the legislative process
with a joint dinner with Lee and lobbyist Fred Karlinsky. The purpose
of the dinner was to enlist some political help in removing the internal
pressure loophole currently used by builders to meet the requirements
of the Florida building code.
FLORIDA BUILDING COMMISSION JUNE 5, 6 AND 7
IHPA President Frank Storms, Joe Belcher, Don Leggett and Doug Thomas
met with members of the Florida Building Commission (FBC) to discuss some
of the building codes that will be affecting the hurricane protection
industry.
FLORIDA HURRICANE CATASTROPHE FUND
After Hurricane Andrew the state of Florida set up a Hurricane Catastrophe
Fund (HCF) to help retain insurance carriers in the state of Florida.
The fund kicks in and begins to cover the industry as a reinsurer when
industry losses reach $4.5 billion. Like individual policy deductibles,
the fund’s activation point applies to each event. Total loss estimates
for each event in all areas, as estimated by the Insurance Services Office
Inc., are as follows: Charley, $6.75 billion; Frances, $4.4 billion; Ivan,
$6 billion; and Jeanne, $3.25 billion.
In 2004 the total payout for the insurance industry will exceed the amount
of damage seen after Hurricane Andrew. But the catastrophe fund will payout
only one-third of the money that the state had attended. If all of the
insured damage was attributed to one storm, the fund would have paid out
approximately $10 billion but because the damage was spread out among
four storms the fund will likely reimburse the insurance industry about
$3 billion dollars. The insurance sector is expected to seek a lower deductible
for future hurricanes. This lower deductible will help eliminate the catastrophic
exposure of the insurance carriers.
Meanwhile, Tom Gallagher, Florida state CFO, has been looking for support
to change the current deductibles for the citizens of the state from a
percentage per storm to some type of storm season deductible. Gallagher
has mandated storm mediation centers to begin mediating storm complaints
from persons who sustained damage. Under the current format, the insured
asks for mediation and the insurance company then has 21 days to settle
the claim. Once the claim goes to mediation the insurance carrier has
20 days to settle
HURRICANE FALLOUT
• Ordinance or law coverage: The destruction
caused by the four hurricanes in a relatively short period served to emphasize
the insurance-to-value problem. The escalating cost of building materials,
skyrocketing property values throughout much of the country and strengthened
building codes have contributed to the problem. An insured that has lost
a home may be faced with serious financial problems when rebuilding if
he or she is underinsured.
The most significant issue for the hurricane protection industry is the
ordinance or law coverage.
Without ordinance and law coverage, the insurance company will not pay
for any upgrades of storm protection made necessary from any law or ordinance.
This coverage will be particularly valuable to all building owners whose
structures were built prior to 2002.
• Business Insurance: Business insurance buyers are subject
to the same exposure and coverage considerations as homeowners, structure
and contents, but they have an additional consideration. How to keep the
money coming in to the business while the property is repaired.
With the destruction so widespread and the ability to quickly make permanent
repairs unlikely, Herman Peery, vice president of Insurance Office of
America, one of the country’s top insurance firms, said: “Many
commercial establishments will not have purchased business interruption
or will have significantly underestimated their need for business interruption
insurance, which will lead to a significant number of business failures.”
OUT-OF-STATE WORKERS FLOODS SUNSHINE STATE
With the need for laborers great and the ability of the state of Florida
to supervise construction sites limited by the sheer number of structures
that need to be repaired, the insurance commissioner sent out a memo stating
that under Florida law, construction employers with one or more employees
must provide workers’ compensation coverage for their employees.
Construction employers who are corporate officers or members of a limited
liability company can exempt themselves from coverage if they obtain an
exemption from the Department of Financial Services’ Division of
Workers’ Compensation. In addition, out-of-state contractors must
obtain a Florida policy or a policy endorsed by their current carrier
using Florida rates.
Florida state officials have arrested a contractor who carried no workers’
compensation insurance for laborers who were killed or injured when a
Hobe Sound townhouse building collapsed in July. If convicted the contractor
faces up to five years in jail. In addition to the possible jail time,
the state levied a fine of $2.4 million against his construction company.
STORM SEASON THREATENS SOLVENCY OF INSURER
OF LAST RESORT
Citizens Property Insurance Corp. (Citizens) may be in for an influx of
new policies. The insurer of last resort has added 56,000 new policies
since Hurricane Charley roared through Florida in August 2004. With the
moratorium on cancellations and non-renewals set to expire, even more
homeowners will be forced into Citizens as voluntary market carriers begin
shedding their policies.
According to a news report in The Palm Beach Post, “during the 12
months that ended July 31, Citizens added about 94,600 policies, bringing
its total to 377,096—not counting its high-risk coastal policies—just
before Charley hit. That number has now swelled to 433,079 policies as
of Oct. 31.”
When the state of Florida’s moratorium on canceling insurance polices
expires there will be an increased flow of policies to the insurance carrier
of last resort.
The cause of this increase is twofold: One, Florida mandates that all
insurance carriers in the state must have a ratio of insured value to
reserves. With the extremely large amount of money being paid to insureds
who suffered damage during the storms, the carriers will not have enough
surplus to write any new polices. Two, there’s increased uncertainty
about one deductible for an entire storm season coupled with the ability
of structures to be rebuilt using the designed-for-internal-pressure methodology,
which as last year’s storms showed leads to increased claim activity.
The larger Citizens grows the more the risk shifts from private companies
and their investors onto the shoulders of insurance consumers. If it falls
short of cash, Citizens may assess all policyholders in the state, including
those covered by private companies, to help pay its claims. Currently,
Citizens estimates its hurricane losses at $2 billion and cash reserves
at $1.8 billion
Allstate Corp. stopped selling new homeowners coverage in most Florida
counties because it had $1.1 billion in hurricane-related costs this year,
and the state is discussing laws that may increase expenses for future
storms. The freeze will last at least until lawmakers hold a special session
to discuss prohibiting insurers from charging separate deductibles for
each storm that hits in a given year, Allstate said.
The upcoming legislative session will set a new course for the state
and the representatives of the IHPA will be there representing the hurricane
protection industry and its business. |
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