Transcript P6466 - iii Template

The Legacy of Hurricane Andrew:
What Has Been Learned
Over the Past 20 Years?
Florida International University
Miami, FL
June 27, 2012
Download at www.iii.org/presentations
Robert P. Hartwig, Ph.D., CPCU, President & Economist
Insurance Information Institute  110 William Street  New York, NY 10038
Tel: 212.346.5520  Cell: 917.453.1885  [email protected]  www.iii.org
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
2
Lesson Learned: Strong
Building Codes, Mitigation Are
Essential in Creating Disaster
Resistant Communities
Hurricane Andrew Had Major Impact
on Building Code Strengthening
and Enforcement
3
Residential Building Code Ratings in
Hurricane Prone States
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 postAndrew storms
Source: Rating the States, Dec. 31, 2011, Insurance Institute for Business and Home Safety; Insurance Information Institute.
4
Florida Leads the US with 2.1 Million
NFIP Policies in Force*
*As of Sept. 30, 2011
Source: National Flood Insurance Program; Insurance Information Institute.
5
Insurance Industry Invests Millions in
Property Loss Reduction 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
Source: Insurance Information Institute from IBHS web site: http://ofb.ibhs.org/research
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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 Property
7
U.S. Insured Catastrophe
Loss Update
2011 Was One of the Most Expensive
Years on Record
8
Top 14 Most Costly Disasters
in U.S. History
(Insured Losses, 2011 Dollars, $ Billions)
$50
$45
$40
$35
$30
$25
$20
$15
$10
$5
$0
Even 20 years later, Hurricane
Andrew is the 2nd most
expensive event in US history
$19.1
$4.3
$4.4
$5.5
$6.5
Irene
(2011)
Jeanne
(2004)
Frances
(2004)
Rita
(2005)
$7.7
$8.5
$9.0
Hugo
(1989)
Ivan
(2004)
Charley
(2004)
$21.3
$47.6
$24.0 $25.0
$11.9 $13.1
Wilma
(2005)
Ike
Northridge Spring
9/11
(2008)
(1994) Tornadoes Attack
& Storms* (2001)
(2011)
Andrew
(1992)
Katrina
(2005)
Most of the costliest disaster in US history
were hurricanes, most impacting FL
*Losses will actually be broken down into several “events” as determined by PCS. Includes losses for the period April 1 – June 30.
Sources: PCS; Insurance Information Institute inflation adjustments.
9
Natural Disasters in the United States,
1980 – 2011
Number of Events (Annual Totals 1980 – 2011)
300
There were 117 natural
disaster events in 2011
250
Number
200
150
100
37
8
50
51
2
1980
1982
1984
1986
1988
Geophysical
(earthquake, tsunami,
volcanic activity)
Source: MR NatCatSERVICE
1990
1992
1994
1996
1998
Meteorological (storm)
Hydrological
(flood, mass movement)
2000
2002
2004
2006
2008
2010
Climatological
(temperature extremes,
drought, wildfire)
10
US Insured Catastrophe Losses
($ Billions, 2011 Dollars)
$100
$32.3
$14.1
$28.5
$10.3
$11.2
$71.7
$32.9
$15.9
$7.4
$6.0
$11.3
$14.0
$3.7
$10.7
$12.3
$8.6
$7.8
$4.7
$13.7
$40
$25.8
$36.9
$60
$33.9
$80
$20
Record Tornado
Losses Caused
2011 CAT Losses
to Surge
$7.3
$120
$100.0
$100 Billion CAT Year is
Coming Eventually
$0
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 CAT Losses in 2011 Were the 5th Highest in US History on An
Inflation Adjusted Basis
*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.
12
12
Inflation Adjusted U.S. Catastrophe
Losses by Cause of Loss, 1990–2011:H11
Wind/Hail/Flood (3), $12.7
Fires (4), $9.0
Other (5), $0.6
Geological Events, $18.5
2.4%
4.9% 3.4%0.2%
Terrorism, $24.9
6.6%
42.7%
Winter Storms, $30.0
8.0%
Hurricanes & Tropical Storms,
$160.5
Tornado share of
CAT losses is
rising
31.8%
Tornadoes (2), $119.5
Wind losses are by
far cause the most
catastrophe losses,
even if hurricanes/TS
are excluded.
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 losses
4. Includes wildland fires
5. 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.
13
Florida’s Longest Span Between
Hurricanes
9.15
6.68
6.22
6 Years
317 Days*
Aug., 31, 1856 - Oct. 24, 2005 Oct. 23, 1865
???*
6 Years
79 Days*
6 Years
249 Days*
4.87
9 Years
53 Days
10
9
8
7
6
5
4
3
2
1
0
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”
Sep. 4, 1979 Nov. 20, 1985
Oct. 12, 1987 Aug. 23, 1992
*As of June 30, 2012
Source: USA Today, 6/26/12. from flhurricane.com; Insurance Information Institute.
RNW Homeowners: FL vs. U.S.,
1990-2010
(Percent)
100%
0%
-100%
-200%
-300%
-400%
-500%
-600%
-700%
-800%
90
91
92
93
94
US HO
Sources: NAIC.
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
FL HO
15
Homeowners Average Expenditure: FL
vs. U.S., 1995-2009
$1,800
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
95
96
97
98
US HO
Sources: NAIC.
99
00
01
02
03
04
05
06
07
08
09
FL HO
16
Global Property Catastrophe Rate on Line
Index, 1990—2012 (as of Jan. 1)
Hurricane Andrew had a
major impact on PropertyCat reinsurance pricing
Year Over Year % Change
100%
300
237
76%
68%
80%
255
250
235
233
230
60%
199
200
8%
10%
145
-3%
-12%
-16%
-9%
-6%
100
-11%
-11%
-18%
-20%
-8%
-13%
-20%
-3%
0%
0%
105
150
14%
115
154
152
133
14%
123 111
200
184
3%
100
20%
25%
15%
20%
147
141
195
173
184
40%
190
-40%
50
Cumulative Rate on Line (1990=100)
Year Over Year % Change in ROL
Cumulative Rate on Line Index
0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Sources: Guy Carpenter; Insurance Information Institute.
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2011 Property and Casualty Insurance
Regulatory Report Card
D+
AK
AL
A+
WA
C-
MT
ND
B
MN
ID
B-
=A
=B
=C
=D
=F
= NG
SD
B+
B
BB+
NV
CO
C
C
IL
OK
C+ B+VA
B
TN
AR
C
CSource: James Madison Institute, February
2008. AL
C
GA
MS
B+
C
C+
BLA
NM
C
NC
SC
B
TX
Florida was the only state to get
a grade of “F” in 2011, due in
large part to it’s disastrous staterun (re)insurance programs
CD
FL
F
Not Graded: District of Columbia
Source: R Street Institute, June 2012.
B
NJ
B-
D
DE
WV
KY
B
C
AZ
HI
IN
MO
KS
CMD
OH
A+
D
C-
A+
B
UT
A
CA
RI
IA
NE
CT
PA
C+
B
MA
NY
MI
A
A
NH
D
D+
WI
WY
B-
B+
VT
C
OR
ME
B
C
C
Coastal Residual Market
Exposure
State-Run Coastal Plans Surged With
Population Growth in Exposed States;
Growth Continues
19
Population Growth Projections for Hurricane
Exposed States (2000 to 2030) (000s)
Florida
12,703.4
12,465.9
Texas
4,178.4
3,831.4
2,746.5
North Carolina
Georgia
Virginia
By 2030, Florida is expecting a
population increase of 12.7 million,
closely followed by Texas with an
expected increase of 12.5 million.
410.7
New Hampshire
1,725.8
Maryland
229.1
1,136.6
254.5
1,388.1
Delaware
South Carolina
Hawaii
New Jersey
136.2
662.9
104.6
427.1
247.8
283.1
333.7
501.0
Maine
Massachusetts
Rhode Island
Alabama
Mississippi
Connecticut
Louisiana
New York
0
2,000
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.
4,000
6,000
8,000
10,000 12,000 14,000 16,000
Source: U.S. Census Bureau, accessed at http://www.census.gov/population/projections/PressTab1.xls
U.S. Residual Market: Total Policies In-Force
(1990-2011) (000)
(000)
Katrina, Rita
and Wilma
3,500
3,000
4 Florida
Hurricanes
2,500
2,780.6
3,311.8
2,840.4
2,841.4
2,621.3
2,479.4
2,209.3
2,203.9
2,000
1,741.7
Hurricane 1,785.0
1,642.3
Andrew
1,458.1
1,500
1,319.7
1,196.5
1,000
931.6
500
0
1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
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.
Source: PIPSO; Insurance Information Institute
U.S. Residual Market Exposure to Loss
($ Billions)
($ Billions)
$1,000
$800
$700
4 Florida
Hurricanes
$600
$500
$400
Hurricane
Andrew
$281.8
$300
$200
$100
$884.7
Katrina,
Rita and
Wilma
$900
$771.9
$656.7
$703.0
$696.4
$757.9
$430.5$419.5
$372.3
$292.0
$221.3$244.2
$150.0
$54.7
$0
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
residual market (FAIR & Beach/Windstorm) Plans has surged from $54.7
billion in 1990 to a record high of $884.7 billion in 2011.
Source: PIPSO; Insurance Information Institute (I.I.I.).
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Total Value of Insured Coastal Exposure In 2007
($ Billions)
Florida
$2,458.6
$2,378.9
New York
$895.1
Texas
$772.8
Massachusetts
$635.5
New Jersey
$479.9
Connecticut
$224.4
Louisiana
$191.9
S. Carolina
Virginia
$158.8
Maine
$146.9
North Carolina
$132.8
Alabama
$92.5
Georgia
$85.6
Delaware
$60.6
New Hampshire
$55.7
Mississippi
$51.8
Rhode Island
$54.1
Maryland
Florida had $2.5 trillion in insured
coastal property exposure in 2007,
the highest of any hurricaneexposed state.
$14.9
$0
Source: AIR Worldwide
$500
$1,000
$1,500
$2,000
$2,500
$3,000
Insured Coastal Exposure As a % Of Statewide
Insured Exposure In 2007
Florida
79.0%
64.0%
Connecticut
62.0%
New York
59.0%
Maine
54.0%
Massachusetts
36.0%
Delaware
35.0%
Louisiana
34.0%
New Jersey
29.0%
Rhode Island
28.0%
S. Carolina
26.0%
Texas
23.0%
NH
13.0%
Mississippi
12.0%
Alabama
11.0%
Virginia
9.0%
NC
5.0%
Georgia
Maryland
1.0%
0%
Source: AIR Worldwide
20%
40%
60%
80%
100%
Florida Citizens Exposure to Loss ($ Billions)
$600
$510.7
$485.1
$500
$460.7
$421.9
$408.8
$406.0
$400
$300
$200
$195.5
$206.7
$210.6
2003
2004
2005
$154.6
$100
$0
2002
2006
2007
2008
2009
2010
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.
Source: PIPSO; Insurance Information Institute (I.I.I.).
2011
$6,000
$7,210.5
$7,024.2
$6,687.0
$6,253.1
$7,000
$5,369.5
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.
$8,000
$5,643.0
Mississippi Windstorm Plan: Exposure to
Loss (Millions of Dollars)
$5,000
$1,873.0
$1,631.8
$1,344.3
$848.6
$864.9
$917.9
$1,000
$352.9
$2,000
$637.1
$3,000
$1,121.7
$4,000
$0
1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: PIPSO; Insurance Information Institute
Texas Windstorm Insurance Association (TWIA):
Exposure to Loss (Building & Contents Only) ($ Billions)
$80
$70
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.
$64.4
$67.4
$71.1 $72.0
$58.6 $58.6
$60
$50
$38.3
$40
$30
$20
$12.1 $13.2
$16.0
$18.8 $20.8
$23.3
$10
$0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Mar
312012
Source: TWIA at 06/05/12, Texas Department of Insurance, Southwestern Insurance Information Services (SIIS)
Massachusetts FAIR Plan Exposure to Loss
(Billions of Dollars)
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.
$90
$80
$70
$60
$79.5
$81.5 $79.4
$77.6 $76.7
$68.6
$54.0
$50
$39.2
$40
$26.7
$30
$15.3 $16.7
$20
$10
$20.5
$8.3 $10.3
$4.1
$0
1990 1995 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: PIPSO; Insurance Information Institute
Insurance Information Institute Online:
www.iii.org
Thank you for your time
and your attention!
Twitter: twitter.com/bob_hartwig
Download at www.iii.org/presentations
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