Florida's Hurricane Alley: Is 2004 the New Norm?

When he reminded attendees at the 2005 Windstorm Conference that predicting hurricane landfall was still far from being an exact science, Max Mayfield, director of the National Hurricane Center in Miami, probably was preaching to the choir.

Pointing to a slide showing a map of the predicted landfall for Hurricane Charley, he noted that the Tampa Bay area was projected to be ground zero before the storm unexpectedly took a sharp turn into Charlotte County. Mayfield's comments brought back scary memories to the locals in the room, reminding them that Charley likely would have been a Category 5 storm as it crossed densely populated Pinellas and Hillsborough counties. Although the storm missed the Tampa Bay area, Charley's 145 mile-per-hour winds still caused $6.8 billion in insured losses, while destroying 10,000 homes and severely damaging another 17,000.

Although the damage from Charley would have been enough for any state to absorb, it was just one of four major storms to make landfall in Florida during the 2004 season. All told, the state suffered some $21 billion in losses, which, as Mayfield pointed out, could have been worse.

Just before landfall, Charley's strength increased as its barometric pressure dropped to five milllibars per hour, according to Mayfield. Even so, in addition to missing the Tampa Bay area, Charley's circumference was so small that it reduced the storm surge and wind field. Had the storm's circumference been wider, “there would have been 12 to 15 feet of surge in a lot more places,” noted Mayfield.

The 2004 season was unusual in many respects. After a slow start, eight storms formed in August, with all but four of the 15 named storms striking land somewhere. Ivan was the southernmost major hurricane ever formed and was designated a Category 5 three different times. Part of it broke off and went back into the Gulf of Mexico after hitting the Panhandle. Hurricane-hunter pilots had to get extensions several times to exceed allowable flying hours while tracking the storms.

The trend toward more storms in a season dates back to 1995, when scientists started noticing that the Atlantic Ocean is warming. The higher the water temperature, the more conducive the conditions for hurricanes. The warming trend has held steady except for the El Ni?o years, 1997 and 2002. Mayfield expects hurricane seasons to be much more active over the next 10 to 20 years. He also noted that had Louisiana been the target of four hurricanes, rather than Florida, the scenario would have been much worse. “If Ivan had gone that way, many, many more lives would have been lost,” he said.

Also speaking at the conference was William E. Bailey, special counsel for the Insurance Information Institute. Bailey is working on a book, The Big Four in '04, examining the long-term trends of hurricane losses in Florida. “The history of the insurance industry in Florida is full of crashes,” he said. “Hurricane Andrew wiped out all net earnings from over 50 years. The storms of 2004 appear to have wiped out everything put back after Andrew.”

The two key terms that describe a successful market, he said, are sustained profitability. “Florida, unfortunately, doesn't qualify for either term in insurance markets,” he said. “People investing in insurance companies have to deal with companies with immense losses. Like in stocks that will crash, Florida represents that scene.”

Florida is the most disaster-prone state in the nation. Three of the top 10 disasters in the world have been Florida hurricanes (Andrew, Charley, and Ivan). Andrew and the 2004 series of storms resulted in 3 million claims and $40 billion in losses. Enormous growth is straining the private market, with $12 billion in new housing stock in Miami-Dade County in the last 10 years. If Andrew had reached land 21 miles further north, it would have been a $50-$70 billion storm, Bailey said.

Bailey also broached the issue of how much longer companies writing in Florida can expect their policyholders in other states to tolerate subsidizing Florida's expensive and risky coastal populations. Some remedies are being considered, he said, such as lowering the threshold for the Florida Hurricane Catastrophe Fund. Regarding keeping homeowners' deductibles at $500, he predicted premium increases of 41 percent on $100,000 to $200,000 houses on the coast, and 45 percent for those more than $200,000. Inland homeowners can expect 27 percent increases for $100,000 residences, and 30 percent for those more than $200,000.

The annual Windstorm Conference brings together claim adjusters and other insurance professionals. Many attendees specialize in claim services, including appraisals, mold remediation, and restoration. Along with presenters and panel moderators from these fields, speakers' topics covered the Lloyd's market, the Florida Building Code, business interruption, pre-existing damage, and the effects of wind on buildings. The 2006 Windstorm Conference is scheduled for Feb. 8-11, at the Hilton Walt Disney Resort.

Sharon Moorhead is a contributing editor for Claims' sister publication, Florida Underwriter.