As we head towards another legislative session where property insurance will no doubt be front and central, it is important to look back and reflect on the impact powerful hurricanes have had on our great state.
Hurricane Andrew was no doubt a game changer. On August 24, 1992, the storm that no one thought could happen, destroyed South Florida. Former Florida Insurance Commissioner Tom Gallagher reflected on the devastation left in the wake of Andrew. Everything was leveled, “everything was gray and black. There was no green. The palm trees had no palms.” At first he couldn’t comprehend the impact, so at the urging of his sister, Gallagher went to see it himself. He eventually took many insurance executives on trips with him; it needed to be seen to be understood. The trips helped to an extent, and many policyholders received payouts to help with the destruction. But many providers indicated they were leaving the state or were significantly cutting back their coverage to those properties on the coast. To make matters worse, no one was there to pick up the non-renewed or cancelled policies. Gallagher knew he had to do something.
He attempted to slow the escape of many national carriers by instituting a 90-day rule that required providers to give notice of the cancellation or non-renewal. While the providers may have not been happy about the regulations, including those that limited the percentage of policies they could not renew, the companies weren’t in a place to argue. Gallagher also extended the reach of the Florida Property and Casualty Joint Underwriting Association (PCJUA) to include residential coverage for those homeowners insured by insolvent carriers. PCJUA was previously limited to last-resort coverage for commercial properties. This extension eventually led to the creation of the Residential PCJUA, the predecessor of Citizens Property Insurance Corporation, now the largest residential insurer in Florida.
Other changes ensued, state legislators authorized the issuance of almost $500 million in tax-free bonds to fund a shortfall at the state guaranty fund, and established the Florida Hurricane Catastrophe Fund. With no one looking to invest in the policies left behind; the Florida government had to invest in them itself. Gallagher didn’t want to take these actions because of the effect it might have on citizens in the long run, but Andrew’s destruction left him no viable option.
What lessons are to be learned from these events? There are many. But two big ones stick out. Don’t let insurance companies skirt from their financial obligations. And make sure Florida homeowners are protected above and beyond the insurance companies’ financial interests