Hurricane Irma: A Stress Test for Florida Home Insurance


SARASOTA, FLORIDA, September 12, 2017 – Insurers’ financial strength particularly in Florida will be put to a stress test, industry analysts say, as a result of damage from Hurricane Irma which early estimates indicate will cost the insurance sector somewhere between $20 billion to $40 billion in claims.

In particular, the major concern of Irma-struck Florida homeowners is if their insurers would be able provide them with the coverage under their policies. This issue is even more critical for those homeowners whose Irma-damaged properties have already been listed in the MLS of Bradenton or Sarasota homes for sale and would need additional priming up to draw prospective buyers.

Lesson from Andrew

Financial Stress

When Hurricane Andrew—the strongest to hit Florida prior to Irma—struck the Sunshine State in 1992, a million policyholders were reported left without coverage. This occurred as 22 Florida insurance companies failed to meet the financial stress on claims related to Andrew which was estimated to have caused $27 billion in damage ($47 billion in current values).

There are no indications as yet of a similar failure. It’s disconcerting to industry observers though that many Florida homeowners got their home insurance coverage from state-owned insurer Citizens Property Insurance and small local companies. Big national carriers, such as Allstate and State Farm, had scaled down writing Florida homeowners’ insurance policies some years ago because of state’s higher risks and uncooperative regulators.

Catastrophe Fund Enough?

Citizens Property and the homegrown insurers notably all rely on the Florida Hurricane Catastrophe Fund which has $17 billion accumulated during the past 12 years that the state had no major storms. With Irma’s expected extensive impact in Florida, such fund may not suffice, analysts fear.

The Florida homeowners with the better coverage, they say, are those whose policies were written by insurers holding more reinsurance than ever. In one conservative estimate, about 50 companies in the state, which represent 60 percent of its insurance market, have transferred some of their exposure through reinsurance to bigger and well-capitalized companies.

Given this, it would be smart for homeowners to check if their insurers are well-leveraged and could withstand Irma-related policy claims. The number of Florida insurance companies who have spread their exposure wider could have increased in recent years, in view of the various dynamics at play in the market.

Reinsurance Is the Key


During the last few years, there was a decline in reinsurance prices even for insurers in the traditionally high-risk Florida which prior to Irma has not experienced a major storm since 2005. Reinsurance too has become an imperative for insurers because of sustained annual gains in home values, continued rise in home-building and increased cost of repairs.

A specialized financial instrument called catastrophe bonds have also become more affordable to insurers, further enhancing their capability to spread their risks. Investors asked for a 21 percent yield when Citizens Property Insurance issued its first catastrophe bond in 2012. This 2017, the rate was reported to have dropped to just 7 percent. Citizens Property said that through reinsurance and catastrophe bonds, it was able to raise its capacity to absorb losses for this year by $1.3 billion at a cost of $97 million.