- The Washington Times - Wednesday, September 8, 2004

Thousands of homeowners in Florida hit by Hurricanes Charley and Frances will be getting a nasty surprise from their insurance companies — the amount they must pay themselves could be steep.

Insurers as much as tripled Florida homeowner rates and set up a separate deductible for hurricane damage after Hurricane Andrew cost them $15.5 billion in damages in 1992.

The hurricane deductible, which could rise because of Hurricane Frances, is a percentage of a home’s insured value, generally set at 2 percent to 5 percent. For other types of damage, homeowners pay deductibles in the hundreds of dollars, like a deductible of $1,000.

The change was made in 1996, one of many concessions state lawmakers made to insurers to keep them selling hurricane coverage in Florida. But most residents making claims because of Charley or Frances are doing so for the first time since then. And a number will be stunned at how much they’re responsible for paying.

“People don’t realize they have a large deductible,” said Tom Gallagher, Florida’s chief financial officer. “I really think that’s a surprise people aren’t expecting.”

It’s not easy for those who read their policy, either.

Ilyse Kusnetz knew her policy included the higher deductible. When a 65-foot tree fell on her Orlando house during Charley, she became one of thousands looking at a large repair bill, one that she will be largely responsible for because of the high deductible.

Andrew’s aftermath, worth about $20.3 billion in damages today, caused 11 insurance companies to go bankrupt, said Robert Hartwig, chief economist at the Insurance Information Institute, a trade group in New York. Andrew was the most expensive storm in U.S. history and a benchmark for the industry when setting aside reserves.

Because of Andrew, insurers imposed the higher deductibles and began better preparing for major storms.

“While financing something like that is painful, it will now not lead to insolvency. Companies are now planning for large catastrophes or multiple events,” Mr. Hartwig said, adding insurers have the financial resources and manpower to handle more storms this year.

Some Florida residents may have to pay a double deductible because insurers require separate claims and deductibles for damage from separately named storms.

Gov. Jeb Bush said the double deductible is something that might need to be changed. “That could be an issue that the Legislature looks at,” he said yesterday.

“I don’t think we have to justify it,” said Sam Miller, spokesman for the Florida Insurance Council, which represents insurers. “Without it, rates would be considerably higher than they are.”

The recent hurricane activity “is certainly nothing that took the industry by surprise,” said Julie Pulliam, spokeswoman for the American Insurance Association.

“Insurance companies cannot predict where a storm makes landfall or causes damage. But from a financial point of view, they have been preparing for something like this,” she said.

Still, the one-two punch of Charley and Frances, both making landfall in Florida within three weeks, is an anomaly, said Peter Dailey, atmospheric science manager for AIR Worldwide Corp., a Boston risk-modeling company.

Hurricane Charley, which slammed into central Florida on Aug. 13, caused about $6.8 billion in insured losses from its intense but narrow path. Hurricane Frances, which hit the east coast of Florida over the weekend with a broader path, is estimated to cost insurers between $3 billion and $6 billion.

The last time two hurricanes at Category 3 or higher made landfall in Florida in the same hurricane season was in 1950, with Hurricanes Easy and King.

The National Weather Service predicted in May the hurricane season would bring 12 to 15 tropical storms, with six to eight becoming hurricanes and two to four of those becoming major hurricanes.

Typically, insurers at the start of the year buy enough reinsurance, or insurance for insurance companies, for two catastrophes, Bill Keogh, senior vice president and managing director for the Americas at Risk Management Solutions Inc., a Newark, Calif., risk-modeling company.

With the two storms already straining resources and Hurricane Ivan heading toward Florida, insurance companies probably will buy more coverage to cover claims for wind-related damage, which is covered under standard homeowner policies.

Flooding from the hurricanes and tropical storms in the past few months is not covered by most insurers. Flood insurance policies are handled by the Federal Emergency Management Agency. About 25 percent of eligible U.S. property owners have policies.

This article is based in part on wire service reports.

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