Florida 2011 hurricane season uneventful, yet dismissing storm threat is for dreamers
Believing that Florida will never have another hurricane is a lot like believing in Santa Claus. You really want it to be true. And, now that Hurricane Season 2011 is officially over, it’s so delightful to dream that you can forever scratch off your holiday wish list gifts like a whole-house generator or impact-resistant windows. (What?!! I’m the only one asking Santa for those?) We go directly from Hurricane Season to Candy Cane Season, and yet it’s hard to completely deny the reality that the greater distance between past storms may mean we are more unprepared for the next one. Most of us don’t want to think about it, but property insurers in the nation’s most hurricane-prone state cannot take a holiday from catastrophe management.
Your property insurance rates are unlikely to drop after six consecutive hurricane-free years because Florida’s hurricane history shows that seven of the most costly Florida hurricanes occurred in the past 10 years. Insured losses for Florida’s top 10 storms range from $500 million with Hurricane Erin in 1995 to the $23.8 billion in losses from Hurricane Andrew in 1992 (in 2010 dollars).
If a storm identical to Hurricane Andrew hit the same area in the coming year, estimated insured losses would be about $57 billion. That’s what insurers prepare for – and worse. And, keep in mind that this was only a benign season from Florida’s perspective. The fact is this year was extremely active – with 18 named storms, six hurricanes and three major hurricanes, which are storms that reach a Category 3 or higher.
Insurance premiums are based on a history of claims payouts. Today’s rates take into account the future costs of a major hurricane, based on losses paid in the past. Take a look at the return on net worth chart.
That tells the story of Florida’s natural disaster risk where years of cash reserves can be wiped out with a single storm – such as in 2004 when the return on net worth was a triple-digit negative at –183.3 percent. Preparing to handle that scenario is what rates are based upon.