The Legacy of Hurricane Andrew: What Has Been Learned Over the Past 20 Years?

The Legacy of Hurricane Andrew:What Has Been Learned Over the Past 20 Years? Florida International University

Miami, FLJune 27, 2012

Download at www.iii.org/presentationsRobert P. Hartwig, Ph.D., CPCU, President & Economist

Insurance Information Institute 110 William Street New York, NY 10038Tel: 212.346.5520 Cell: 917.453.1885 [email protected] www.iii.org

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Hurricane Andrew: The Legacy Lives On At $15.5 Bill, Hurricane Andrew Was the Costliest Insurance Event in Global History When it

Occurred in 1992 ($25 Bill in 2011 $) Andrew held that title until the Sept. 11, 2001 terrorist attacks ($24 bill in 2011 $) Most expensive natural disaster until Hurricane Katrina ($47.6 bill in 2011 $)

Hurricane Andrew Was the Most Disruptive Event in US Insurance History 11 small insurers failed (FL, LA); resources of many large insurers were strained

Hurricane Andrew Fundamentally and Irrevocably Changed How Insurers and Reinsurers Manage Catastrophic Risk in the US and Globally

Insurance Markets Changes Occurring in the 20 Years Since Andrew: More Carefully Managed Coastal Exposure (and for cat exposure in general) Capital Base (Capacity) of Global (Re)Insurance Industry Greatly Expanded More Use of Reinsurance Birth and Rapid Evolution of Sophisticated Catastrophe Modeling Growth of Markets Like Bermuda Use of Capital Market Instruments (e.g., CAT Bonds) Larger Role of Government in Insuring Coastal Risks Strong Support for Strengthened Building Codes and Mitigation

3

Lesson Learned: Strong Building Codes, Mitigation Are Essential in Creating Disaster

Resistant CommunitiesHurricane Andrew Had Major Impact

on Building Code Strengthening and Enforcement

3

Residential Building Code Ratings in Hurricane Prone States

Source: Rating the States, Dec. 31, 2011, Insurance Institute for Business and Home Safety; Insurance Information Institute. 4

Florida and Virginia were the top ranked states

in terms preparedness of

residential structures against hurricane damage

Despite catastrophic losses from Hurricane

Katrina in 2005, MS still has no statewide building code, putting it dead last

in the US;AL and TX rank poorly as well despite major post-

Andrew storms

Florida Leads the US with 2.1 Million NFIP Policies in Force*

5

*As of Sept. 30, 2011Source: National Flood Insurance Program; Insurance Information Institute.

Insurance Industry Invests Millions in Property Loss Reduction Research

6Source: Insurance Information Institute from IBHS web site: http://ofb.ibhs.org/research

In 2010, the Insurance Institute for Business and Home Safety Research Center Opened in Chester County, SC. The $40 Million Facility Is Entirely

Funded by the Insurance Industry and Its Mission Is to Conduct Research to Reduce Property Loss from a Variety of Perils, Including Hurricanes

7

Lesson NOT Learned: The US Is More Vulnerable than

Ever to Catastrophic Hurricane Loss

Hurricane Andrew Had Zero Effect in Terms of Diminishing Demand for

At-Risk Property7

8

U.S. Insured Catastrophe Loss Update

2011 Was One of the Most Expensive Years on Record

8

9

Top 14 Most Costly Disastersin U.S. History

(Insured Losses, 2011 Dollars, $ Billions)

*Losses will actually be broken down into several “events” as determined by PCS. Includes losses for the period April 1 – June 30.Sources: PCS; Insurance Information Institute inflation adjustments.

$9.0$11.9 $13.1

$19.1 $21.3 $24.0 $25.0

$47.6

$8.5$7.7$6.5$5.5$4.4$4.3

$0$5

$10$15$20$25$30$35$40$45$50

Irene(2011)

Jeanne(2004)

Frances(2004)

Rita (2005)

Hugo (1989)

Ivan (2004)

Charley(2004)

Wilma(2005)

Ike (2008)

Northridge(1994)

SpringTornadoes& Storms*

(2011)

9/11Attack(2001)

Andrew(1992)

Katrina(2005)

Even 20 years later, Hurricane Andrew is the 2nd most

expensive event in US history

Most of the costliest disaster in US history were hurricanes, most impacting

FL

Num

ber

Geophysical (earthquake, tsunami, volcanic activity)

Climatological (temperature extremes, drought, wildfire)

Meteorological (storm)

Hydrological (flood, mass movement)

Natural Disasters in the United States, 1980 – 2011Number of Events (Annual Totals 1980 – 2011)

Source: MR NatCatSERVICE 10

37

8

51

2

50

100

150

200

250

300

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

There were 117 natural disaster events in 2011

12

$12.

3

$10.

7

$3.7 $1

4.0

$11.

3

$6.0

$33.

9

$7.4 $1

5.9 $3

2.9

$71.

7

$10.

3

$7.3

$28.

5

$11.

2

$14.

1 $32.

3

$100

.0

$13.

7

$4.7

$7.8

$36.

9

$8.6

$25.

8

$0

$20

$40

$60

$80

$100

$120

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*20??

US Insured Catastrophe Losses

*PCS figure as of April 6, 2012.Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01 ($25.9B 2011 dollars). Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B ($15.6B in 2011 dollars.) Sources: Property Claims Service/ISO; Insurance Information Institute.

US CAT Losses in 2011 Were the 5th Highest in US History on An Inflation Adjusted Basis

$100 Billion CAT Year is Coming Eventually

Record Tornado Losses Caused

2011 CAT Losses to Surge

($ Billions, 2011 Dollars)

12

13

Inflation Adjusted U.S. Catastrophe Losses by Cause of Loss, 1990–2011:H11

0.2%2.4%

3.4%4.9%

6.6%

8.0%

31.8%

42.7%

1.Catastrophes are defined as events causing direct insured losses to property of $25 million or more in 2009 dollars.2.Excludes snow.3.Does not include NFIP flood losses4.Includes wildland fires5.Includes civil disorders, water damage, utility disruptions and non-property losses such as those covered by workers compensation.Source: ISO’s Property Claim Services Unit.

Hurricanes & Tropical Storms, $160.5

Fires (4), $9.0

Tornadoes (2), $119.5

Winter Storms, $30.0

Terrorism, $24.9

Geological Events, $18.5

Wind/Hail/Flood (3), $12.7

Other (5), $0.6

Wind losses are by far cause the most catastrophe losses,

even if hurricanes/TS are excluded.

Tornado share of CAT losses is

rising

Florida’s Longest Span Between Hurricanes

*As of June 30, 2012Source: USA Today, 6/26/12. from flhurricane.com; Insurance Information Institute.

9.15

6.68 6.22

4.87

0123456789

10

Aug., 31, 1856 -Oct. 23, 1865

Oct. 24, 2005 -???*

Sep. 4, 1979 -Nov. 20, 1985

Oct. 12, 1987 -Aug. 23, 1992

The current hurricane dry spell is the second longest in recorded history. Despite recent low activity, it is not a question of “IF” a hurricane

will hit Florida but “WHEN”

9 Ye

ars

53 D

ays

6 Ye

ars

249

Day

s*

6 Ye

ars

79 D

ays*

6 Ye

ars

317

Day

s*

15

RNW Homeowners: FL vs. U.S.,1990-2010

Sources: NAIC.

-800%

-700%

-600%

-500%

-400%

-300%

-200%

-100%

0%

100%

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

US HO FL HO

(Percent)

16

Homeowners Average Expenditure: FL vs. U.S., 1995-2009

Sources: NAIC.

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

US HO FL HO

17

Global Property Catastrophe Rate on Line Index, 1990—2012 (as of Jan. 1)

15%

-3%

-13% -8

%

-20% -18% -1

1%

3%

14%

-11% -6

%

-9%

-16%

10%

-12%

-3%

8%14%

76%

68%

25%

20%

0%

115

141

230

200184

147

123

152

255

233

195

235

184

199

133111

105

237

100

154

173

145

190

-40%

-20%

0%

20%

40%

60%

80%

100%

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Year

Ove

r Yea

r % C

hang

e in

RO

L

0

50

100

150

200

250

300

Cum

ulative Rate on Line (1990=100)

Year Over Year % ChangeCumulative Rate on Line Index

Sources: Guy Carpenter; Insurance Information Institute.

Hurricane Andrew had a major impact on Property-

Cat reinsurance pricing

Source: James Madison Institute, February 2008.

ME

NH

MA

CT

PA

WVVA

NC

LATX

OK

NE

ND

MN

MI

IL

IA

ID

WA

OR

AZ

HI

NJRI B

DE

AL

VT

NY

MD

SC

GA

TN

AL

FL

MS

ARNM

KYMOKS

SD WI

INOH

MT

CA

NV

UT

WY

CO

AK

= A= B= C= D= F= NG

Source: R Street Institute, June 2012.

B- B+

B

C

A

C

B

B

BC-

AB-

C

C

C-

C

C+ D

B

C-

D+

C

CC+

A

B+

B+

A+

A+

C

B

B+

A+

B-

C+

B-

B

B+

B

C-

D+

CDC

B-C-

D F

D

2011 Property and Casualty InsuranceRegulatory Report Card

Not Graded: District of Columbia

Florida was the only state to get a grade of “F” in 2011, due in

large part to it’s disastrous state-run (re)insurance programs

19

Coastal Residual Market Exposure

State-Run Coastal Plans Surged With Population Growth in Exposed States;

Growth Continues

19

333.7283.1

427.1104.6

662.9136.2

1,388.1254.5

1,136.6229.1

1,725.8410.7

2,746.53,831.4

4,178.412,465.9

12,703.4

501.0

247.8

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000

New YorkLouisiana

ConnecticutMississippi

Alabama

Rhode IslandMassachusetts

Maine

New Jersey

HawaiiSouth Carolina

Delaware

MarylandNew Hampshire

Virginia

GeorgiaNorth Carolina

TexasFlorida

Population Growth Projections for Hurricane Exposed States (2000 to 2030) (000s)

The U.S. as a whole is expected to have a population increase of 82.1 million, or 29.2 percent during the same period.

Source: U.S. Census Bureau, accessed at http://www.census.gov/population/projections/PressTab1.xls

By 2030, Florida is expecting a population increase of 12.7 million, closely followed by Texas with an expected increase of 12.5 million.

U.S. Residual Market: Total Policies In-Force (1990-2011) (000)

Source: PIPSO; Insurance Information Institute

931.6

1,785.0

1,458.11,196.5

1,741.7

2,841.4

3,311.8

2,479.4

1,319.7

2,621.32,780.6

1,642.3

2,840.4

2,209.32,203.9

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

(000)

Hurricane Andrew

4 Florida Hurricanes

Katrina, Rita and Wilma

In the 22-year period between 1990 and 2011, the total number of policies in-force in the residual market (FAIR & Beach/Windstorm) Plans has more

than tripled.

23

U.S. Residual Market Exposure to Loss($ Billions)

Source: PIPSO; Insurance Information Institute (I.I.I.).

$281.8

$757.9

$884.7

$430.5$372.3

$54.7

$150.0

$292.0$244.2$221.3

$419.5

$656.7 $696.4

$771.9$703.0

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

($ Billions)

In the 22-year period between 1990 and 2011, total exposure to loss in the residual market (FAIR & Beach/Windstorm) Plans has surged from $54.7

billion in 1990 to a record high of $884.7 billion in 2011.

Hurricane Andrew

4 Florida Hurricanes

Katrina, Rita and Wilma

$14.9$54.1$51.8

$60.6$85.6$92.5$132.8$146.9$158.8$191.9$224.4

$479.9$635.5

$772.8$895.1

$2,378.9$2,458.6

$55.7

$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000

Maryland

Rhode Island

Mississippi

New Hampshire

Delaware

Georgia

Alabama

North Carolina

Maine

Virginia

S. Carolina

Louisiana

Connecticut

New Jersey

Massachusetts

Texas

New York

Florida

Total Value of Insured Coastal Exposure In 2007($ Billions)

Source: AIR Worldwide

Florida had $2.5 trillion in insured coastal property exposure in 2007,

the highest of any hurricane-exposed state.

1.0%5.0%

9.0%

12.0%13.0%

23.0%26.0%

28.0%29.0%

34.0%35.0%36.0%

54.0%59.0%

62.0%64.0%

79.0%

11.0%

0% 20% 40% 60% 80% 100%

Maryland

Georgia

NC

Virginia

Alabama

Mississippi

NH

Texas

S. Carolina

Rhode Island

New Jersey

Louisiana

Delaware

Massachusetts

Maine

New York

Connecticut

Florida

Insured Coastal Exposure As a % Of Statewide Insured Exposure In 2007

Source: AIR Worldwide

Florida Citizens Exposure to Loss ($ Billions)

Source: PIPSO; Insurance Information Institute (I.I.I.).

$154.6$195.5 $206.7 $210.6

$408.8

$485.1

$421.9 $406.0

$460.7

$510.7

$0

$100

$200

$300

$400

$500

$600

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Since its creation in 2002, total exposure to loss in Florida Citizens has increased by 230 percent, from $154.6 billion to $510.7 billion in 2011.

Mississippi Windstorm Plan: Exposure to Loss (Millions of Dollars)


$7,2

10.5

$7,0

24.2

$6,6

87.0

$6,2

53.1

$5,6

43.0

$5,3

69.5

$1,8

73.0

$1,6

31.8

$1,3

44.3

$1,1

21.7

$848

.6

$864

.9

$917

.9

$637

.1

$352

.9

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Total exposure to loss in the Mississippi Windstorm Underwriting Association (MWUA) has surged by 1,943 percent, from $352.9 million in

1990 to $7.2 billion in 2011.

Texas Windstorm Insurance Association (TWIA): Exposure to Loss (Building & Contents Only) ($ Billions)

Source: TWIA at 06/05/12, Texas Department of Insurance, Southwestern Insurance Information Services (SIIS)

$72.0$71.1$67.4$64.4

$58.6$58.6

$38.3

$23.3$20.8$18.8$16.0$13.2$12.1

$0

$10

$20

$30

$40

$50

$60

$70

$80

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Mar31-

2012

TWIA’s exposure to loss for building & contents has surged by 495 percent in the last 12 years from $12.1 billion in 2000 to

$72.0 billion in 2012.

Massachusetts FAIR Plan Exposure to Loss (Billions of Dollars)


$76.7$77.6$79.4$81.5$79.5

$68.6

$54.0

$39.2

$26.7$20.5

$16.7$15.3$10.3$8.3

$4.1

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

In the 22-year period between 1990 and 2011, total exposure to loss in the MA FAIR plan has surged by 1,771 percent from $4.1 billion in

1990 to $76.7 billion in 2011.

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Documents

The Legacy of Hurricane Andrew: What Has Been Learned Over the Past 20 Years?