After Hurricane Andrew made landfall in South Florida, causing enough damage to make 11 P&C insurers to go under, Florida established the Florida Residential Property and Casualty Joint Underwriting Association as an insurer of last resort to deal with the rising cost of insuring homes against wind damage in the area. Takeup was swift, with 937,000 policyholders in just four years.
In 2002, that entity was merged with the Florida Windstorm Underwriting Association (FWUA) into one entity to form the Citizens Property Insurance Corporation. For a while, the combined entity ran a surplus — but after the destructive 2004 and 2005 hurricane seasons, it ran into financial trouble.
Today, 20 years after Andrew first led regulators to establish government-run P&C insurers, and as Tropical Storm Isaac threatens to hit the state next week, Citizens is a hot topic of debate in the state, as it asks for a 10% boost in premiums.
As a Time article notes, it's "not ideal to rely on a state-backed insurer as much as Florida leans on Citizens, whose bosses argue that its premiums are too low and its exposure too big to weather the next Andrew." But with development in coastal areas with exposure to these types of events continues apace, the financial risk to owners of that property grows — and it's perhaps a fait accompli that government will get involved. The Time piece notes that there is an effort at the national level to establish a "CAT Fund," pooling money from the most disaster-prone states so that public and private insurers can defray some premium costs.
This debate is just part of what the first storm to cause double-digit billions of dollars in insurance loss wrought. Check out this video from Accuweather, where they discuss what happened in the moments leading up to the event that changed everything:
Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio