Hurricane Matthew has the Florida insurance industry bracing for its biggest test in a decade

Hurricane Matthew approaches at Lauderdale by the Sea Beach on Thursday in Fort Lauderdale.
[Sun Sentinel/TNS]

Hurricane Matthew approaches at Lauderdale by the Sea Beach on Thursday in Fort Lauderdale. [Sun Sentinel/TNS]
Published Oct. 7, 2016

Nearly 25 years after it was decimated by Andrew and a decade after it was hobbled by a two-year torrent of hurricanes, the first big test for Florida's rebuilt property insurance industry has arrived.

The insurance industry nationally and in Florida is arguably in its best financial shape to date to pay for a surge of storm claims from Hurricane Matthew.

Nationally, the property and casualty industry this week reported a second-quarter surplus topping a record $680 billion, which is more than a dozen times bigger than the largest catastrophe on record: 2005's Hurricane Katrina.

For now, insurers up and down the Atlantic coast are in an agonizing waiting game.

"The hurricane wind field is 60 miles from the center which is not particularly large," said Steve Bowen, chief meteorologist for Aon, a global provider of insurance, reinsurance and risk management. "Any slight deviation in the track to the west or east could make a substantial difference in what the ultimate cost may mean."

Some early forecasts have predicted Matthew could trigger as many as 100,000 claims costing upward of $7.5 billion, with wind claims far exceeding flood claims.

Based on Matthew updates as of mid-Thursday, real estate analytics firm CoreLogic estimated almost 2 million homes along the Atlantic coast in Florida, South Carolina, North Carolina and Georgia are at risk of storm surge damage. More than 954,000 homes in Florida alone are at risk of damage from a Category 4 storm, it said.

Citizens Property Insurance, the state-run company that covers Florida homeowners who cannot find insurance on the open market, has spent a decade beefing up its reserves and cutting its policy count.

"Since the 2004-05 hurricane seasons, Citizens has become much stronger financially and structurally," Citizens spokesman Michael Peltier said. "We are better equipped than ever to respond to a storm."

With $7.5 billion in surplus, access to the Florida Hurricane Catastrophe Fund, and "prudent reinsurance purchases," Citizens says it's in a position to handle a 1-in-100 year storm without having to levy assessments on policyholders. Under state law, all Florida property owners can be assessed if Citizens is unable to pay all its claims after a catastrophe.

At the same time, Citizens is better prepared logistically to respond to hurricanes than in 2004 when the quartet of hurricanes crossing Florida — Charley, Frances, Ivan and Jeanne — left it scrambling to find enough insurance adjusters to prepare claims. Since then, it has invested in catastrophe response equipment and contracted for a sizable network of independent adjusters.

Lynne McChristian, Florida representative for the Insurance Information Institute, said Matthew may prove to be "trial by fire" for many relatively new Florida-based domestic insurers that were created by taking policies out of Citizens. But she noted that many of them are run by executives with prior experience handling hurricanes.

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"I believe they are going to show their policyholders they are ready," she said.

Not everyone is as confident.

"Hurricane Matthew will test Florida's previously untested homeowner specialist insurers if there are significantly sizable losses,'' said Christopher Grimes, director in insurance at Fitch Ratings, which assesses the financial strength of insurers.

Times/Herald writer Mary Ellen Klas contributed. Contact Jeff Harrington at Follow @JeffMHarrington.