Hurricane Andrew: Its legacy felt by insurers and coastal states
When Hurricane Andrew struck Florida and Louisiana in 1992, it was the costliest natural disaster in history in terms of insurance payouts, with claims costs of $15.5 billion at the time ($25 billion in 2011 dollars). Today, Andrew is the second costliest U.S. natural disaster, after Hurricane Katrina, which hit in 2005.
Claims costs are only part of Andrew’s legacy. It brought a harsh realization that coastal risk had been seriously underestimated. It forced individuals, insurers, legislators, insurance regulators and state governments to come to grips with the necessity of preparing financially and physically for unprecedented natural disasters.
Many of the insurance market changes that have occurred nationally over the last two decades can be traced to the wake-up call delivered by Hurricane Andrew. These include:
A storm of sorts continues, even in hurricane-free years, as Florida adapts to the risk management strategies of private insurers and state-run Citizens Property Insurance Corp. Strategies to carefully manage risk seem prudent and practical to insurers; understandably, homeowners simply see their rates go up and have little patience for understanding the reasons why. The private insurance industry is required to secure capital in advance to be able to pay the volume of claims that come after a natural disaster. Those funds are built up over time for the day the bottom falls out. And, insurance claims keep coming in for other types of losses, even when storms leave us alone for six-plus years.
For those who want additional insight, read Hurricane Andrew and Insurance: An Enduring Legacy of an Historic Storm.