When Hurricane Wilma headed toward the southeast coast of Florida with sustained winds of 125 miles per hour, there was a sense of disbelief and weariness among policyholders, insurance company officials, claim adjusters, and state officials. After withstanding the damage from four major storms in 2004, and three large storms in 2005, the reality of another hurricane's making landfall in the state appeared beyond all probability. As Senate Banking and Insurance Chairman Rudy Garcia (R.-Hialeah) remarked at a recent committee meeting, "No one could have imagined eight storms in two years."
That sense of disbelief, however, was quickly dispelled by the reality that, out of the eight storms, Wilma was poised to be the most destructive. Similar to the experience of Louisiana in the immediate aftermath of Hurricane Katrina, when Wilma initially struck Florida, there was a sense that the state had dodged a bullet. Instead of coming ashore in the highly developed coastal cities of Fort Myers or Naples, Wilma made landfall on the eastern edge of the Florida Everglades. The problem was that the marshy swamplands of the Everglades provided no geographic features that would significantly diminish the hurricane's fury. As a result, Wilma retained most of its strength as it crossed the mainland and into Palm Beach, Broward, and Miami-Dade counties, which have the state's largest concentration of population and property exposure.
As with any hurricane, two main concerns arise: addressing the immediate needs of the state's citizens and preparing the groundwork to adjust claims and start the rebuilding process. Hurricane Wilma was a large storm that affected a widespread area of the state with some locales seeing extensive structural damage, while other cities and counties went weeks without electricity. "A majority of the substations of Florida Power and Light were damaged, and along the east coast the power line poles snapped like toothpicks," said Garcia.
While state and federal agencies moved to ease citizens' suffering, regulators and insurance companies began the slow process of assessing the damage and handling claims. At press time, state agencies and other organizations had yet to collect the data necessary to calculate the number of claims and financial losses from Wilma. However, regulators and others offered some insight into the magnitude of the storm by comparing it to other storms that caused damage in Florida in 2004 and 2005.
The ISO Property Claim Services and Florida's Office of Insurance Regulation offered the following loss figures for the 2004 and 2005 hurricane season:
In 2004, Hurricane Charley caused an estimated $8 billion in losses, which was followed by Hurricane Frances at $5.2 billion. Hurricane Ivan accounted for $4.2 billion in losses and Hurricane Jeanne $4.1 billion.
Hurricane Dennis made landfall in the state between Navarre Beach and Pensacola in July. PCS estimated that Florida's total claims will reach 85,000 with insured losses at $640 million. Personal property losses accounted for 60,000 claims, with 13,000 commercial property claims and 12,000 auto.
Hurricane Katrina made landfall in the Miami and Fort Lauderdale area in August, on its way into the Gulf of Mexico and Louisiana. PCS estimated that Florida's losses from Katrina will total $468 million and 110,000 claims, and that personal property claims will reach 85,000, representing $368 million in damages. Commercial property claims will account for 8,000 claims and $325 million in losses, and the storm caused 17,000 auto claims, costing insurers another $53 million.
Florida was spared the brunt of Hurricane Rita, which cause a severe amount of damage along the Texas and Louisiana border. PCS projected Florida's losses to be $23 million, with 3,000 personal property claims accounting for $9 million in insured losses. Commercial property losses are estimated at $10 million for 1,000 claims, with another $4 million in insured losses from 4,000 auto.
Tallying Wilma
As for Wilma, there is little doubt that it will be the largest and most costly storm to make landfall in Florida in the last two years. Until Wilma, the state's projected 2005 hurricane loss totaled roughly $1.5 billion. Although carriers have yet to report their actual claim and loss figures for Wilma, various computer models make it clear that the storm's losses have far exceeded losses from other storms. RMS, the computer modeling company, calculated Wilma's estimated losses at around $12 billion.
Florida Hurricane Catastrophe Fund received model results between $3.5 billion and $10.4 billion, with an average of around $6.8 billion, according to Jack Nicholson the fund's executive director. That number likely is low, however, as carriers' reimbursement requests are not finalized until they complete the claim-handling process, he noted. The fund's losses are being watched closely, as they could trigger an assessment for the first time in the fund's history. "It would take about $7.75 billion to $8 billion in loss to exhaust the cat fund," said Nicholson. "At that point, we would have to look at borrowing money."
The 2004 hurricane season exposed a variety of problems when it came to resolving claims. One of these was due to the sheer volume of claims, which far exceeded what claim adjusters reasonably could be expected to handle. Carriers admitted that they were ill prepared for the onslaught of claims, while regulators acknowledged that they had not anticipated some of the problems in the system. It was against this backdrop that lawmakers, regulators, and others took aggressive steps to prepare for the possibility of a large number of claims as a result of the 2005 hurricane season.
Most experts believe that Florida's final claim count from Wilma will run between 300,000 and 400,000. Citizens Property Insurance Corporation, the state's largest homeowners' insurer, is projecting that Wilma will result in 120,000 to 130,000 residual market claims. Of those, 65 percent are expected to be for minor damages, such as downed trees. Still, Citizens expects its losses from Wilma to exceed $1 billion.
The large number of claims is the result of Wilma's striking Dade, Broward, and Palm Beach counties, where the insurer has the highest concentration of policies, according to Bob Ricker, Citizens' executive director. "The stormed surprised everyone by retaining a Category 2 or 3 status as it moved across Florida," he said. "This was a significant claim event for Citizens and the balance of the industry."
Anticipating Trouble
As part of a strategy to improve claim handling and create the resources to handle a large number of storms, regulators took several steps to help consumers. Lawmakers instituted a single-season deductible, as opposed to a per-storm deductible. In a 1996 homeowners' insurance reform bill, lawmakers allowed insurers to impose policyholder hurricane deductibles ranging from $500 to 5 percent. Homes and mobile homes valued at $100,000 have hurricane deductibles of $500, in keeping with the standard deductibles applied for other perils, and deductibles for higher-value homes are 2 percent or 5 percent. In the wake of last year's storm season, however, multiple deductibles proved too onerous for policyholders.
In a legislative special session, lawmakers approved a per-season deductible. They also appropriated up to $150 million from the cat fund to reimburse policyholders. Specifically, the law required that the fund immediately transfer $20 million to the Insurance Regulatory Trust Fund. As of Mar. 1, 2005, regulators had received 30,000 policyholder applications for reimbursements, of which 18,000 have been approved. The average reimbursement payment has been $1,400, for a total of $25 million. Additionally, 120 condominium associations submitted reimbursement applications, of which 20 have been approved. The largest condo reimbursement has been $1.2 million.
Chief Financial Officer Tom Gallagher stepped into the claim-handling process when he issued an emergency rule capping public adjuster fees. Due to the number of claims that resulted from the four hurricanes in 2004, many carriers engaged in bidding wars for claim-adjuster services. In some cases, claim adjusters started working for multiple companies and demanded high fees to adjust claims. Public adjusters, who are paid by consumers, also started to charge higher than reasonable fees, taking advantage of their clients.
Gallagher recently acted to prevent a similar situation from occurring this year. He issued an emergency rule that caps public adjuster fees at 10 percent of a claim payment. He also allows consumers up to 14 days to cancel a contract with a public adjuster without being financially penalized. Additionally, public adjusters cannot demand or accept any fee prior to the settling of a claim. "South Floridians have experienced some serious damage and we are going to do all we can to further protect them during the recovery period," Gallagher said.
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