IBA Southeast: Hurricane Matthew to test wind, flood insurance markets in Southeast

As cleanup begins in Florida and beyond, a new market in the area and a heavily indebted federal program could see strain

Insurance News

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As storm cleanup begins in the aftermath of Hurricane Matthew, challenges are emerging for two important insurance markets: the relatively young Florida market for wind coverage and the already heavily indebted National Flood Insurance Program.

In the wake of Hurricane Wilma in 2005, a small but strong group of specialist insurers focused on risk in Florida have come to dominate the property market in the state; figures from analyst firm Keefe Bruyette & Woods suggest Universal Insurance and Tower Hill Group alone account for nearly 10% of the market, and smaller insurers constitute 60% of the homeowners market in general.

With limited loss experience, however, some in the industry have raised questions over the insurers’ ability to handle Matthew claims without resorting to significant premium increases for consumers.

“These smaller companies have a relatively short history and haven’t had the experience of dealing with claims activity from a large storm,” Christopher Grimes, a director at Fitch Ratings, told Reuters.

Yet damages from Matthew – once estimated to reach as much as $30 billion – are now believed to be lower. A Saturday projection from CoreLogic pegged the figure at closer to $4 billion, and new Florida companies are feeling optimistic. Clearwater, Florida-based Heritage Insurance Holdings said as early as Friday that it could absorb losses from the storm.

Keefe Bruyette & Woods Managing Director Meyer Shields was also bullish on prospects for the specialist companies.

“Those very Florida-focused companies have definitely dodged a bullet in terms of losses they could have incurred had Matthew been worse,” Shields told Insurance Business America.

Good reinsurance would also likely save any companies in danger of overwhelming losses, said J. Robert Hunter, director of insurance for the Consumer Federation of America.

Hunter is more concerned over the NFIP, which could be facing billions of dollars in new claims. The program is already more than $23 billion in debt, and is anticipating incoming claims from heavy floods in Louisiana and Iowa early this year. The burden from Matthew could force Congress to expand the program’s borrowing authority.

Still, claims will be paid, said Hunter.

“They’ve paid billions more than they have already, and will probably pay another couple of billion here,” Hunter told Reuters. “But it really has the full faith and credit of the United States behind it. If they have to pay more claims, they’ll pay them.”

Related Stories:
Matthew unlikely to affect property market after all, industry leaders say
Legislation considers dropping flood policies for policies with repeated losses

 

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