Former Florida Insurance Commissioner Recalls Hurricane Andrew’s Game-Changing Impact

But on Aug. 24, 1992, with winds whipping at more than 165 mph, Hurricane Andrew made landfall at Homestead, Fla. and tore through the Sunshine State with a terrifying ferocity.

The damage had to be seen to be understood. That's what the sister of Tom Gallagher told him.

Gallagher, then Florida insurance commissioner (as well as the state's treasurer and fire marshal), had made some boilerplate remarks to the media following the storm about getting adjusters out to the scene and paying claims. His sister thought his statements were insensitive—that they lacked a grasp of what people had just been through.

"She said, 'Don't you have any compassion at all?'" Gallagher says, remembering a phone call from his sister. "You need to see this place," she told him.  

He took her advice and got in a helicopter to go to some of the spots with the worst damage.

"There was nothing higher than your knees—everything was leveled," Gallagher says of a mobile home park he toured. "Everything was gray and black. There was no green. The palm trees had no palms."

Gallagher's up-close-and-personal inspection hammered home just how devastating the damage was, and he required many insurance-company executives to take helicopter rides with him in the days following the destruction in order to visit insureds—and learn firsthand just how grim the situation was.

"I wanted them to see the faces of the people they insured, the folks who had paid them money in case something like this happened, the folks who were just trying to get back on their feet," says Gallagher.

It worked—to a point. By February 1993 a report by Gallagher's office indicated insurers had already paid out more than $11 billion to policyholders despite there being no real standard to handle the unprecedented situation Andrew presented.

At the same time, insurers were telling Gallagher they were leaving, or significantly cutting back policy counts—especially on the coast.

Allstate told him they had plans to not renew more than 800,000 policies, he says. Other carriers were coming up with similar plans to nonrenew, cancel and reduce the number of new policies written.

Making matters worse, no one was lining up to take the policies being left behind by the fleeing national carriers, which wrote 94 percent of the Homeowners' business. (Today, national carriers make up less than 20 percent of the market.)

"Right away we had a true [availability and affordability] emergency on our hands," says Gallagher, who is now with the law firm Colodny, Fass, Talenfeld, Karlinsky & Abate as a consultant in its governmental consulting and insurance-regulatory practice.

Gallagher issued numerous emergency rules related to the quick reduction in insurers' appetite to write in Florida. He had to at least stanch the bleeding.

For example, insurers had to submit plans to take any action in the marketplace 90 days before doing so—a rule that evolved in May 1993 to a 90-day moratorium on the cancellation and nonrenewal of policies. More regulations followed. Moratoriums were extended. Limits were placed on how much of an insurer's book it could nonrenew. 

"They didn't necessarily like the rules imposed, but they weren't going to challenge it under the circumstances," Gallagher says.

He also allowed the Florida Property and Casualty Joint Underwriting Association, previously earmarked for last-resort commercial coverage, to provide residential coverage to homeowners with an insolvent insurer. Soon thereafter, legislators created the Residential PCJUA—the precursor to today's Citizens Property Insurance Corp. 

At Gallagher's urging, state legislators authorized municipalities and counties to issue $500 million in tax-free bonds to fund a shortfall at the state guaranty fund.

During a second special session prior to 1993's hurricane season, the Florida Hurricane Catastrophe Fund was established because the last-resort insurer had already expanded drastically, and its financial stability was questionable.

"There was a shortage of reinsurance," Gallagher says. "It was impossible to get—or at least afford."

The former insurance commissioner says he didn't really want to create a fund that would ultimately assess everyone in Florida if it needed to, and he would have preferred not to issue bonds that needed to be paid back by residents—but "we were desperate.

"There were no entrepreneurs looking to invest in us," he recalls. "I challenged everyone for better ideas. I certainly wasn't married to the ones we wound up going with. But we had to."