Florida Insurance Market Update:
Trends, Insight, Business
Insurance & Risk Management
Association of Contingency Planners, Tampa Chapter
March 19, 2014
Lynne McChristian, Florida Representative
Insurance Information Institute  110 William Street  New York, NY 10038
Cell: 813.480.6446  lynnem@iii.org  www.iii.org  www.Insuring.Florida
Presentation Outline
 Catastrophe Loss Update
 It’s Not Just Hurricanes Anymore!
– Tornadoes & Thunderstorms
– Flood/Surge—Key Issues in Flood Insurance
 Florida Insurance Market
 Overview of Profitability & Hurricane History
 What the Future Holds
 Flood Insurance & the Storm Surge Threat
 Business Insurance
 Supply Chain Risk Management
 Key Person Coverage
2
U.S. Insured Catastrophe Losses
$33.6
$35.0
$12.8
$10.5
$29.2
$33.7
$16.3
$7.6
$6.1
$11.6
$14.3
$3.8
$11.0
$12.6
$8.8
$10
$8.0
$20
$4.8
$30
$14.0
$40
$26.4
$37.8
$50
$34.7
Andrew
$60
$14.4
$70
2012 was the third
most expensive year
ever for insured CAT
losses
$11.5
Storms of
2004/05
$7.5
$80
$73.4
($ Billions, $ 2012)
$0
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13*
 2013 CATs Were Well Below Recent Years.
 2012 Was 3rd Highest Year for Insured Losses in
U.S. History on Inflation-Adj. Basis.
 2011 Losses Were the 6th Highest.
Record tornado
losses caused
2011 CAT losses
to surge
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. *Through 12/31/13.
3
Number of Federal Major Disaster
Declarations, 1953-2014*
99
81
75
55
47
59
63
48
52
56
44
10
32
36
32
38
43
45
11
31
34
24
21
15
23
22
25
27
28
23
38
30
29
17
17
19
11
11
22
20
25
25
12
12
10 federal disasters
declared so far in 2014*
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
7
7
13
17
18
16
16
40
0
42
48
46
46
60
20
69
65
80
The number of federal disaster
declarations set a new record in
2011, with 99, shattering 2010’s
record 81 declarations.
50
45
45
49
100
There have been 2,154
federal disaster
declarations since
1953. The average
number of declarations
per year is 35 from
1953-2013, though this
few haven’t been
recorded since 1995.
75
120
The Number of Federal Disaster Declarations Is Rising and Set New Records
in 2010 and 2011 Before Dropping in 2012/13.
*Through March 12, 2014.
Source: Federal Emergency Management Administration; http://www.fema.gov/disasters; Insurance Information Institute.
4
Federal Disasters Declarations by State,
1953 – 2014: Highest 25 States*
Over the past 60 years,
Florida has had the 5th
highest number of
Federal Disaster
Declarations (32 were
associated with
tropical events).
30
20
10
0
43
44
46
47
47
48
49
50
51
51
52
52
53
55
55
56
57
66
Hurricanes
Tornadoes
Floods
Freezes
Wildfires
Severe T-Storms
High Winds
Extreme Tides
40
40
50
50
60
60
67
70
74
Disaster Declarations
80
79
90
88
100
TX CA OK NY FL LA AL KY MO AR IL MS IA TN WV MN KS PA NE VA OH WA ND SD ME
*Through Jan. 25, 2014. Includes Puerto Rico and the District of Columbia.
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
5
Federal Disasters Declarations by State,
1953 – 2014: Lowest 25 States*
Over the past 60 years,
Wyoming and Rhode
Island had the fewest
number of Federal
Disaster Declarations.
11
11
13
15
15
9
10
17
22
23
23
24
24
26
26
26
26
28
33
35
36
36
39
19
20
29
30
37
Disaster Declarations
40
40
42
50
0
NC AK IN WI GA VT NJ NH MA OR PR HI MI NM AZ MD ID MT CO CT NV DE SC DC UT RI WY
*Through Jan. 25, 2014. Includes Puerto Rico and the District of Columbia.
Source: FEMA: http://www.fema.gov/news/disaster_totals_annual.fema; Insurance Information Institute.
6
Inflation Adjusted U.S. Catastrophe
Losses by Cause of Loss, 1993–20121
Wind/Hail/Flood (3), $14.9
Geological Events, $18.4
Fires (4), $6.5
Other (5), $0.2
1.7%
4.7% 3.8%0.1%
Terrorism, $24.8
6.3%
7.1%
40.4%
Winter Storms, $27.8
Tornado share of
CAT losses is
rising
Tornadoes (2), $140.9
Insured CAT losses
from 1993-2012
totaled $391.7B, an
average of $19.6B
per year or $1.6B
per month
Hurricanes & Tropical Storms,
$158.2
36.0%
Wind losses, 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 2012 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.
7
U.S. Thunderstorm Insured Loss Trends,
1980 – 2013
Hurricanes get all the headlines,
but thunderstorms are consistent
producers of large scale loss.
2008-2013 are the most expensive
years on record.
Average
thunderstorm
losses are up 7 fold
since the early
1980s. The 5-year
running average
loss is up sharply
Source: Property Claims Service, and MR NatCatSERVICE
Thunderstorm losses in 2013
totaled $10.3 billion, the 6th
highest on record
8
Severe Weather Reports in Florida: 2013
There were 400 severe
weather reports in 2013
37 Tornadoes
47 Large Hail Reports
316 High Wind Events
Source: NOAA Storm Prediction Center; http://www.spc.noaa.gov/climo/online/monthly/2013_annual_summary.html#
9
Florida Insurance Market
Q: Big Profits in Storm-Free Years?
A: Nope
10
Return on Equity: Property/Casualty
Insurance vs. Fortune 500, 1987–2013E*
(Percent)
P/C Profitability Is Both by
Cyclicality and Ordinary Volatility
20%
Katrina,
Rita, Wilma
15%
Sandy
10%
Sept. 11
5%
0%
Hugo
Lowest CAT
Losses in
15 Years
Andrew
Northridge
4 Hurricanes
Financial
Crisis*
Record
Tornado
Losses
-5%
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13E
* Excludes Mortgage & Financial Guarantee in 2008 – 2013E. 2013 P/C ROE is through 2013:Q3.
Sources: ISO, Fortune; Insurance Information Institute.
11
Return on Net Worth
Homeowners: FL vs. U.S., 2003-2012
(Percent)
Average 2003-2012
The average rate of return
on the FL homeowners line
is ZERO percent over the
decade from 2003 - 2012
100%
US: 6.0%
FL: 0.0%
50%
0%
-50%
-53.4%
-100%
2004/2005
hurricanes
-150%
183.3%
-200%
03
04
05
US HO
Sources: NAIC.
06
07
08
09
10
11
12
FL HO
12
Homeowners: 10-Year Average Return on
Net Worth: FL & Nearby States
At 0.0%, Florida
Homeowners profitability
is below the US average
and above the regional
average
2003-2012
19.9%
South Carolina
10.7%
North Carolina
6.0%
U.S.
0.0%
Florida
-7.2%
Georgia
-14.4%
Alabama
-19.2%
Louisiana
-30%
-20%
-10%
0%
Source: NAIC, Insurance Information Institute
10%
20%
30%
Return on Net Worth
Commercial Multi-Peril: FL vs. U.S.,
(Percent)
2003-2012
40%
20%
0%
-20%
Average 2003-2012
-28.8%
-40%
US: 9.0%
2004/2005
hurricanes
-60%
-80%
FL: 7.3%
-77.2%
-100%
03
04
05
US Comm M-P
Sources: NAIC.
06
07
08
09
10
11
12
FL Comm M-P
14
Return on Net Worth
Private Passenger Auto: FL vs. U.S.
Average 2003-2012
14%
US: 7.6%
12%
FL: 4.7%
10%
8%
6%
4%
2%
0%
03
04
05
US PP Auto
Sources: NAIC.
06
07
08
09
10
11
12
FL PP Auto
15
Return on Net Worth
Workers Comp: FL vs. U.S.
(Percent)
18%
16%
14%
12%
10%
8%
6%
Average 2003-2012
4%
US: 7.1%
2%
FL: 11.0%
0%
03
04
05
US WComp
Sources: NAIC.
06
07
08
09
10
11
12
FL WComp
16
Top States by Inflation-Adjusted
Insured Catastrophe Losses, 1983–2012
Over the Past 30 Years Florida Has Accounted for the Largest Share of
Catastrophe Losses in the U.S., Followed by Texas and Louisiana.
FL is the most
costly state for
CATs, with
nearly $67B in
insured losses
over the past 30
years.
Louisiana
$42.0B
Texas
$48.8B
Florida
$66.7B
9.0%
10.4%
Rest of the U.S.
$309.9B
14.3%
66.3%
Total: $467.5 Billion,
an average of
$16.6B per year or
$1.3B per month
Source: PCS unit of ISO, Verisk Company.; Insurance Information Institute.
17
Top 16 Most Costly Disasters
in U.S. History
(Insured Losses, 2012 Dollars, $ Billions)
Hurricane Andrew
remains the second
most expensive natural
disaster in US history.
$60
$50
$48.7
$40
$30
Includes
Tuscaloosa, AL,
tornado
Includes
Joplin, MO,
tornado
$23.9 $24.6 $25.6
$18.8
$20
$10
$0
$9.2 $11.1
$8.7
$7.8
$7.5
$7.1
$6.7
$4.4 $5.6 $5.6
Irene (2011) Jeanne
(2004)
Frances
(2004)
Rita
Tornadoes/Tornadoes/ Hugo
(2005) T-Storms T-Storms
(1989)
(2011)
(2011)
Ivan
(2004)
Charley
(2004)
Wilma
(2005)
$13.4
Ike
(2008)
Sandy* Northridge9/11 Attack Andrew
(2012)
(1994)
(2001)
(1992)
Katrina
(2005)
12 of the 16 Most Expensive
Events in US History Have
Occurred Over the Past Decade.
*PCS estimate as of 4/12/13.
Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.
18
Top 12 Most Costly Hurricanes
in U.S. History
(Insured Losses, 2012 Dollars, $ Billions)
6 of the 12 most costly hurricanes in
insurance history impacted Florida.
Hurricane Sandy is the
costliest tropical event
to not impact FL.
$60
$50
$48.7
$40
$30
$25.6
$18.8
$20
$10
$5.6
$6.7
$7.8
$8.7
$9.2
$4.4
$5.6
Irene
(2011)
Jeanne
(2004)
Frances
(2004)
Rita
(2005)
Hugo
(1989)
Ivan
(2004)
Charley
(2004)
$11.1
$13.4
$0
Wilma
(2005)
Ike
(2008)
*PCS estimate as of 4/12/13.
Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.
Sandy*
(2012)
Andrew
(1992)
Katrina
(2005)
19
Florida Primed for Growth
A Cautionary Tale:
Coastal Exposure to Risk
Will Increase.
20
Florida’ Economy: Primed for Growth;
Hurricane Vulnerability Increases
 Home Construction in FL Will Rise Sharply.
 110,000 new homes are expected to be built in FL in 2014.
 148,000 in 2015; 167,000 in 2016 and 168,000+ in 2017.
 Florida will account for 1-in-10 new homes built in the US.
 Real Economic Growth Average About 3% through 2017.
 Will fuel commercial property exposures.
 Population Growth Will Greatly Exceed the US Overall
 1.3% to 1.4% per year, almost double ~0.75% for the US.
 In 2014, FL likely to overtake NY as the 3rd most populace state.
 More than 1 million increase through 2017.
 Will drive demand for housing, infrastructure, commercial prop.
 Increase of about 600,000 jobs through 2017.
21
Strong Florida Population Growth Will
Drive Coastal Exposure Sharply Upward
(Millions)
21.0
Florida Population
1.6%
Annual Growth Rate
1.4%
1.3%
20.5
1.2%
1.3%
20.71
1.4%
20.41
1.2%
1.4%
20.13
20.0
1.2%
19.86
0.8%
19.59
0.8%
19.5
At 1.3% to 1.4%,
FL’s population
growth will well
above the US
19.35
19.11
18.88
19.0
1.0%
18.68
0.8%
0.6%
Florida is expected to
add 1.1 million new
residents by 2017
relative to 2013
18.54
18.5
Annual Growth Rate
1.1%
Population
1.4%
0.4%
0.2%
0.0%
18.0
08
09
10
11
12
13E
14F
15F
16F
17F
Source: US Census Bureau; University of Central Florida Institute for Economic Competitiveness: http://iec.ucf.edu/post/2014/01/07/Florida-Metro-ForecastDecember-2013.aspx ; Insurance Information Institute.
22
Florida Total Private Housing Starts,
2000 – 2017F
(Thousands of Units)
CRASH, CRATER, RECOVERY
Homebuilding in FL continues
to recover, adding substantially
to coastal exposures.
The economic
outlook for most of
the US is positive for
the first time in many
years
Source: University of Central Florida Institute for Economic Competitiveness: http://iec.ucf.edu/post/2014/01/07/Florida-Metro-Forecast-December-2013.aspx
23
Total Value of Insured Coastal Exposure
in 2012
(2012, $ Billions)
New York
$2,923.1
$2,862.3
Florida
Texas
$1,175.3
Massachusetts
$849.6
The value of coastal exposure in
New Jersey
$713.9
FL was nearly $2.9 trillion in 2012,
Connecticut
$567.8
up 19% or $465 billion since 2007
$293.5
Louisiana
S. Carolina
$239.3
despite the housing collapse.
Virginia
$182.3
In 2012, New York Ranked as the #1 Most
Maine
$164.6
Exposed State to Hurricane Loss, Overtaking Florida
North Carolina
$163.5
with $2.862 Trillion. Texas is very exposed too, and
Alabama
$118.2
ranked #3 with $1.175 Trillion
Georgia
$106.7
in insured coastal exposure
Delaware
$81.9
New Hampshire $64.0
The Insured Value of All Coastal Property Was $10.6
Mississippi $60.6
Trillion in 2012 , Up 20% from $8.9 Trillion in 2007 and
Rhode Island $58.3
Up 48% from $7.2 Trillion in 2004
Maryland $17.3
$0
Source: AIR Worldwide
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
24
Flood Insurance
Flood Exposure: Reforms on Hold
• Flood Rates, True Risk & Subsidies
• Private Flood Insurance Options
25
Total NFIP Policies in Force, 2012
2,058,201
Florida
645,911
Texas
486,525
Louisana
California
256,836
New Jersey
238,738
Florida has almost three
times as much flood
insurance in force as any
other state, accounting for
37% of all policies in the US
204,895
South Carolina
173,312
New York
138,378
North Carolina
Virginia
115,703
Georgia
96,847
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
Source: U.S. Department of Homeland Security, Federal Emergency Management Agency; Insurance Information Institute.
26
Median Value of Flood Properties
Median Home Values, 2006
450,000
400,000
402,768
339,842
350,000
306,107
300,000
250,000
223,692
All U.S. Homes,
165,344
200,000
150,000
100,000
50,000
Subsidized
Coastal
Subsidized
Inland
Not Subsidized
Coastal
Not Subsidized
Inland
A CBO survey indicated the typical home with flood insurance is
worth significantly more than the typical home. The typical
subsidized coastal risk was worth more than unsubsidized risks.
Congressional Budget Office 2007 survey of coastal risks, with U.S. owner-occupied home median from Bureau of Census, 2005 American Housing
Survey; Insurance Information Institute.
27
What kind of Buildings Does Flood
Insurance Protect?
Non-residential
5.6%
Other
0.4%
Secondary/
Vacation
19.5%
Principal
Residence
74.5%
One-fourth of all flood policies are written on commercial (nonresidential) risks or on secondary homes.
Sources: Congressional Budget Office (2007), Insurance Information Institute.
28
I.I.I. Poll: Disaster Preparedness
Q. Do you have a separate flood insurance policy?1
25%
May-11
20%
May-13
15%
14%
15%
May-12
21%
19%
Percentage of
people with flood
insurance is
unchanged
13%
12%
14%
12%
13% 13%
11%
10%
10%
5%
6%
6%
5%
0%
Northeast
Midwest
South
West
Total U.S.
Only 13 percent of American homeowners say they have a flood insurance
policy; the percentage is lowest in the Northeast at 10 percent.
1Asked
of those who have homeowners insurance and who responded “yes”.
Source: Insurance Information Institute Annual Pulse Survey.
29
I.I.I. Poll: Disaster Preparedness
Q. Does your homeowners policy cover damage from flooding during a hurricane?1
40%
May-11
35%
May-12
About 30 percent of
homeowners in the
South still believe
flooding from a
hurricane is covered
May-13
32% 32%
29%
30%
23%
25%
24%
20%
20%
16%
15%
12%
14%
22% 21%
16%
12%
9%
10%
10%
5%
0%
Northeast
Midwest
South
West
Total U.S.
The proportion of homeowners who believe their homeowners policy covers
damage from flooding during a hurricane stands at 21 percent. This
proportion rises eight percentage points in the South, to 29 percent.
1Asked
of those who have homeowners insurance and who responded “yes”.
Source: Insurance Information Institute Annual Pulse Survey.
30
Top 12 Most Costly Flood Events by
NFIP Payout*
(NFIP Insured Losses, $ Millions)
8 of the 10 most costly events in NFIP history
occurred over the past decade (2004‒2013);
NFIP deficit now totals $24 billion
$18,000
$16,277
$16,000
Katrina and Sandy
are by far the most
costly events in NFIP
history
$14,000
$12,000
$10,000
$7,298
$8,000
$6,000
$4,000
$2,670
$2,000
$1,607
$1,319 $1,104
$585
$537
$493
$473
Louisiana
Flood (1995)
Isaac
(2012)
Isabel
(2003)
Rita
(2004)
$0
Katrina
(2005)
Sandy
(2012)
Ike
(2008)
Ivan
(2004)
Irene
(2011)
Allison
(2001)
*Expressed in original dollars (not inflation-adjusted).
Sources: PCS; Insurance Information Institute inflation adjustments to 2012 dollars using the CPI.
31
Total Potential Home Value Exposure to
Storm Surge Risk in 2013*
($ Billions)
$386.5
Florida
$135.0
New York
$118.8
New Jersey
$78.0
Virginia
$72.0
Louisiana
S. Carolina
$65.6
$65.2
N. Carolina
Florida is by the state most
$51.0
Texas
vulnerable to storm surge.
$50.3
Massachusetts
$35.0
Connecticut
$22.4
Maryland
$20.5
Georgia
$15.9
Delaware
The Value of Homes Exposed to Storm Surge was
$10.4
Mississippi
$1.147 Trillion in 2013.* Only a fraction of this is
Rhode Island $7.2
insured, hence the huge demand for federal aid
Alabama $4.7
following major coastal flooding events.
Maine $3.1
New $2.7
Pennsylvania $2.6
DC $0.6
$0
$50
$100
$150
$200
$250
*Insured and uninsured property. Based on estimated property values as of April 2013.
Source: Storm Surge Report 2013, CoreLogic.
$300
$350
$400
$450
32
Hurricane Sandy: Average Claim Payment
by Type of Claim
$70,000
$60,000
$50,000
$40,000
Commercial (i.e., business
claims) are more expensive
because the value of property is
often higher as well as the
impact of insured business
interruption losses
$30,000
$20,000
$10,000
$6,558
$10,994
$57,277
$44,563
The average insured flood
loss was nearly 9 times
larger than the average
non-flood insured loss
(mostly wind)
$0
Homeowners*
Vehicle
Commercial
NFIP Flood**
Post-Sandy, the I.I.I. worked very hard to make help media, consumers
and regulators understand the distinction between a flood claim and a
standard homeowners claim. NFIP is $24B in debt.
*Includes rental and condo policies (excludes NFIP flood). **As of Oct. 31, 2013.
Sources: Catastrophe loss data is for Catastrophe Serial No. 90 (Oct. 28 – 31, 2012) from PCS as of March 2013; Insurance Information Institute.
33
Business Insurance:
Supply Chain Risk Management
The longer the supply chain the greater
likelihood of a weak link.
34
Global, Intertwined Economy
Over 50% of Fortune 500 profit now comes
from overseas.
Supply chains have become more complex,
extending to multiple levels.
Demographic change has placed more
business in harm’s way.
Catastrophe events are having deeper, widespread impact.
How to Manage Supply Chain
Disruptions
Identification of Risk
 Conduct thorough supply chain mapping exercise.
 Look at processes as they come together to create final
products.
 Look in reverse: starting with where profits are generated
and work backwards to identify greatest financial threats.
Avoidance
 Remove the threat of exposure to the supply chain.
Mitigation
 Reduce the threat associated with exposures.
Manage
 Includes transfer of risk through insurance.
The Challenge: Risk
You can outsource operations, but that
doesn’t mean you are outsourcing risk.
Managing Risk
The majority of property loss is preventable,
even in supply chains.
“Nearly 90 percent of firms do not conduct a
risk assessment when outsourcing
production.”
“Supply Chain Risk: It’s Time to Measure It”
Harvard Business Review Blog, Feb. 5, 2010
Avoid or Mitigate the Interruption
Understand your supply chain at every tier.
Identify weaknesses.
Map the manufacturing process and
overlay it with financial mapping and a
business impact analysis.
Harden facilities, owned or otherwise.
Define acceptable risk.
Create contingency and disaster plans.
Risk Transfer Products
Insurance is part of the solution.
Insurance products evolve, so keep in tune.
 Traditionally, coverage is for physical damage,
business interruption and contingent
coverage.
Business interruption has two levels:
 Gross earnings (Production-based).
 Gross profits (Sales-based).
Contingent Business Interruption
Chain Rule
Physical
Damage
or Loss
To
Supplier,
Customer,
Dependent
Property
Of the Type
Covered
For a
Defined
Indemnity
Period
Which
Causes an
Interruption
Insured Loss
Key Person Insurance
 Life and disability coverage on key individuals.
 Amount of coverage depends on the individual’s
worth to the business or organization.
 A review of the employee’s responsibilities can help
determine the amount.
 Costs are based on the same factors that apply to
anyone seeking such coverage, i.e., age,
height/weight, medical history.
 The business owns the policy, pays the premiums
and is the beneficiary.
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Insurance Information Institute Online:
www.iii.org
www.InsuringFlorida.org
Thank you for your time
and your attention!
Download at www.iii.org/presentations
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