Why Florida Is Largely Insured by Companies You've Never Heard Of
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What is the main topic discussed in this episode?
This is Your Money Matters from The Wall Street Journal.
Welcome to Your Money Matters. I'm Jennifer Strong in New York. These days, Florida is largely insured by companies you've never heard of. Here in the studio with a look at why is The Wall Street Journal's Leslie Sism. Leslie, you say Hurricane Irma is going to test a Florida insurance market where a wave of large insurance companies have aggressively reduced their footprint.
How did Hurricane Andrew in 1992 reshape Florida's insurance market?
Yes, that's right. The story begins really back in 1992 when Hurricane Andrew hit the southern part of Florida. It delivered such huge losses that insurance companies were unprepared for. Insurers back in 92 said, we have a lot more risk in this state than we thought we did, and we need to turn it back. Those withdrawals picked up steam after then 2004 and 2005 when there were seven
Why did many large insurers withdraw after the 2004–2005 hurricane seasons?
hurricanes that hit Florida, including Katrina, the best known of them. In 2006, the Florida market nearly collapsed because so many insurers were saying they needed to really retrench quickly and they wanted big rate increases. Regulators didn't want to give them the increases as large as requested because that was going to be so disruptive to ordinary families' budgets. So as those companies cut back, the state-run Citizens Property Insurance Corporation took on a bigger and bigger role. It's a so-called insurer of last resort.
What role did the state-run Citizens Property Insurance Corporation play after insurer pullbacks?
The state also began efforts to help some small companies take on more Florida residential homeowner business and to become bigger insurers.
So as the state braces for Hurricane Irma, where do things stand now?
The state has been lucky that it's had 12 years to try to get its system in place because we're 12 years past Katrina in 2005. which prompted all those withdrawals. So Irma could be the first test if it does strike Florida. It could be the test of how well-funded those small insurance companies are. They're small to mid-size. They have relatively small capital bases.
How have small and mid-size insurers been prepared to handle a major storm like Irma?
However, the state is very rigorous in requiring all of them to purchase large amounts of reinsurance. This reinsurance comes from companies in London like Lloyd's. It comes from Bermuda. One of the companies we interviewed for our story is reinsured by Berkshire Hathaway.
What kinds of failures have hit Florida insurers besides hurricane losses?
So the Florida government believes that these insurers are going to be in good shape to handle all the claims, even if it's a very bad storm.
You say there have been a few setbacks as Florida rebuilt its insurance markets. Can you tell us about those?
Florida did experience the collapse of some small insurance companies along the way.
What damage does homeowners insurance cover versus when do you need flood insurance?
The collapses generally didn't have anything to do with hurricanes. They had to do with a spate of sinkhole claims and some other matters. That particular type of claim wasn't covered by all this reinsurance I was talking about. So the reinsurance these companies have in place is specifically there to cover hurricane claims. So a few of these companies did run into problems for other reasons.
We're talking with Leslie Sism about Florida's insurance market, and you're listening to Your Money Matters from The Wall Street Journal. Thanks for listening, everyone. Leslie, what are you going to be watching for next here?
One thing our listeners should keep in mind is that their home insurance will cover wind damage and it will cover water damage if the wind blows off their roof or it knocks over a tree that tears off the roof or if debris breaks windows and water comes in. But readers need to remember that the homeowners' policies don't cover flooding damage. Flooding is basically defined as water that comes from the ground and rises up into a house, like it can be coming from a river, it can be coming from the ocean, but it's water that basically enters at ground level and moves up. Homeowners need to get separate flood insurance policies, and those are bought from the federal government. These small insurance companies we're talking about in Florida, by and large, they only sell the basic homeowners, which would include this wind coverage.
They're not covering storm surge or any other flooding that results from Irma.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:02–0:30
2
How did Hurricane Andrew in 1992 reshape Florida's insurance market?
0:30–0:59
3
Why did many large insurers withdraw after the 2004–2005 hurricane seasons?
0:59–1:39
4
What role did the state-run Citizens Property Insurance Corporation play after insurer pullbacks?
1:39–2:26
5
How have small and mid-size insurers been prepared to handle a major storm like Irma?
2:26–2:45
6
What kinds of failures have hit Florida insurers besides hurricane losses?
2:45–3:06
7
What damage does homeowners insurance cover versus when do you need flood insurance?
3:06–5:03
Speakers
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