Hurricane Irma could slam homeowners’ wallets statewide

By Gray Rohrer of the Orlando Sentinel

If Hurricane Irma slams Florida as forecasters predict, the damage could wallop state residents’ pocketbooks for years to come.

The storm’s massive size, intensity and path means it could drain the surplus built up by insurers and a state reserve fund in the 12 years since the last major storms struck.

That could lead to fees being assessed on policies for homes and automobiles, something that happened after the 2004-2005 seasons when five hurricanes hit the state.

Back then, home and car owners were hit with additional payments to help replenish $3.3 billion drained from the Florida Hurricane Catastrophe Fund and a $1.7 billion deficit in the state-run insurance company. And yet another assessment was added after several small insurance companies went belly up after the storms.

“[The insurance industry] is in the best position we’ve ever been in, having said that . . . this is a very large storm and it looks like it will affect all of Florida,” said Fred Karlinsky, a lobbyist for more than two dozen insurance companies with the Greenberg Traurig law firm.

The Cat Fund helps insurance companies endure massive payouts after disasters. It has the ability to cover $17.6 billion.

According to a report from Swiss Re, a global reinsurance company, a storm identical to Hurricane Andrew, which struck South Florida in 1992, would cause $50 billion to $60 billion in damage today.

The last Cat Fund assessment was a 1 percent charge on policies beginning in 2007, which went up to 1.3 percent in 2011. The assessment wasn’t ended until Jan. 1, 2015.

Citizens Property Insurance, a state-run company that acts as an insurer of last resort for properties the private market won’t cover, is projecting Irma’s path to affect 262,000 of its policy holders, more than half of its 442,800 policies in force as of March 31. The company anticipates more than 100,000 claims will result but could not estimate what the total dollar amount would be.

Citizens has the ability to pay up to $12.2 billion in claims. It says its projected claims from a 100-year storm are $6.6 billion.

“We think we’re in as good a shape as we can be from that perspective. You don’t know what’s going to come until it hits,” said Citizens spokesman Michael Peltier. “We would have to exhaust our claims paying ability before assessments would be levied on Florida policyholders.”

But if Irma’s off-the-charts wind power slams the priciest part of Florida real estate and depletes Citizens’ ability to pay claims, it could even trigger a taxpayer bailout.

After the storms of 2004-2005 produced the $1.7 billion Citizens deficit, lawmakers gave it a partial bailout of $800 million and an assessment of 1.7 percent was placed on property owners’ insurance premiums to recover the remaining $900 million. The assessment was reduced to 1 percent in 2011 and ended in 2015.

Another concern is just how equipped some of the small, Florida-based insurers are to handle a storm like Irma.

If a company gets an influx of claims and becomes insolvent, the Florida Insurance Guaranty Association would cover those losses, but it could issue emergency assessments of up to 2 percent on policies statewide to pay for hurricane losses.

The last time FIGA approved a 2 percent assessment was in 2006, to cover $400 million in losses at Poe Financial Group. About a dozen companies went bankrupt after Andrew.

The Florida Office of Insurance Regulation conducted stress tests on several companies in 2015, checking to see how they would fare under different historical hurricanes – the 1947 Fort Lauderdale hurricane, the 1921 Palm Beach hurricane and the 2004 series of four hurricanes. All of the companies passed the test by having the legal minimum amount of surplus.

But Irma’s strength and projected path over much of Florida are threatening to leave the record books behind.

“If there’s a large storm, all bets are off and the numbers are what they are,” Karlinsky said. “There’s no way to pay for an X billion dollar even with only Y billion dollars in the system. The math just doesn’t work.”