Andrew 2.0: A Reimagined Insurance Industry

This post is part of a series sponsored by CoreLogic.

“EXTREMELY DANGEROUS HURRICANE ANDREW BEARING DOWN ON SOUTHEAST FLORIDA…

HURRICANE WARNINGS REMAIN IN EFFECT FOR THE FLORIDA EAST COAST FROM VERO BEACH SOUTHWARD THROUGH THE FLORIDA KEYS TO THE DRY TORTUGAS…

ALL PRECAUTIONS TO PROTECT LIFE AND PROPERTY…INCLUDING EVACUATIONS ORDERED BY EMERGENCY MANAGEMENT OFFICIALS…SHOULD BE RUSHED TO COMPLETION.”

Source: NHC Data Archives

The Big One

In the early morning hours of August 24, 1992 (local time), Hurricane Andrew made its first U.S. landfall on the southeastern coast of Florida. The National Hurricane Center (NHC) Advisory above was issued the evening before, notifying the people of South Florida that life- and property-threatening winds and storm surge were incoming.

Hurricane Andrew was, at the time, the strongest landfalling U.S. hurricane since Camille in 1969. Category 5 winds of 165 mph ripped through southern Miami-Dade County. Entire neighborhoods were leveled leaving only foundations. It was reported that over 100k residential properties were damaged, with 25k being completely destroyed. Nearly all mobile homes in southern Miami-Dade County were destroyed.

The Aftermath

Hurricane Andrew was responsible for more than $25 billion (non-inflation adjusted) of total loss (insured and uninsured combined) in Florida alone, with an additional $1 billion in Louisiana during Andrew’s second landfall and $0.25 billion in the Bahamas. Of the $25 billion of total loss in Florida, $15 billion was insured, a number unheard of by local and national insurance carriers at the time. Insurance providers were unprepared for a loss of such magnitude leading to several carriers going insolvent. Those that did remain solvent issued non-renewals of substantial volume and/or instigated rate hikes material enough to require legislative intervention.

The (re)insurance industry was not the only market impacted by Hurricane Andrew. Real estate markets can be disrupted following a catastrophic event. Immediately following Hurricane Andrew, home sales in the Miami-Miami Beach-Kendall, Fla. CBSA slowed. Sales in August 1992 were 33% lower than a year earlier. In the year before Hurricane Andrew, home prices in the Miami-Miami Beach-Kendall, Fla. CBSA increased by about 2%. Price increases then dipped to about 0.5% four and five months after the hurricane.

For lenders, catastrophic events can cause increased mortgage delinquency rates, as homeowners fail to make monthly payments while dealing with relocation and restoration costs. For example, after Hurricane Laura in August of 2020, delinquency rates increased from 9.8% to 16.1% in the month after landfall. The same phenomenon occurred after Hurricane Ida in 2021. The transition rate from current-to-30-day delinquency, which had been running at about 1% per month, spiked to over 7% in the Houma metro area of Louisiana in the month following the storm.

Are we Ready for Another Andrew?

Hurricane Andrew demonstrated the importance of sophisticated risk management practices. For example, in the wake of Andrew (re)insurers began to regularly utilize fully probabilistic catastrophe models, which account for both the physical characteristics of insured exposure as well as simulate the full range of potential tropical cyclone events (from tropical storms to Andrew-like major hurricanes). (Re)insurers who use models are more confident that their collected premium volume and reserves reflect their portfolio’s risk. But are modern tools and practices enough to keep up with the increasing hurricane risk in states like Florida?

Historically, Florida has experienced more landfalling hurricanes than any other state on the eastern seaboard or Gulf Coast. Southeastern Florida, relative to other parts of the state, have experienced more major hurricanes (greater than or equal to Category 3). Additionally, Miami has become an economic center in the U.S. since 1992, with a booming residential market as people flock to warmer climates.

This begs the question: Are we ready for another Hurricane Andrew? How many homes would be at risk to extreme wind speeds and how substantial would the insured losses be if history were to repeat itself?

Download the full report, “Andrew 2.0: A Reimagined Insurance Industry” available August 24, 2022 on the 30-year anniversary of Hurricane Andrew’s landfall to get these answers.

Please visit www.corelogic.com/intelligence to download the report.

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