The intensity with which Hurricane Michael strikes homes and businesses in northern Florida will bear not only on the property it could damage but also on the dollar amount that triggers property insurance coverage.
The National Weather Service forecast the fast-moving, "extremely dangerous" storm to make landfall as a major hurricane by late afternoon Oct. 10, moving ashore over the Florida panhandle or Big Bend regions. Michael strengthened to Category 4 overnight, with winds of close to 140 mph, and the National Hurricane Center said some further strengthening could occur before landfall.
Life-threatening storm surges of up to 13 feet are possible alongside "potentially catastrophic wind damage," the NHC said. Hurricane-force winds are expected to persist along the storm's path for some distance inland, affecting areas of Florida, Alabama and Georgia. Four to six inches of rain could fall on the Carolinas, including regions still recovering from the flooding damage caused by Hurricane Florence, according to a report from Risk Management Solutions.
A CoreLogic Inc. analysis estimates that more than 57,000 homes lie along the storm's path on the Florida panhandle, with a potential rebuilding cost of about $13.4 billion.
In Florida, United Insurance Holdings Corp. held the largest market share by direct premiums written in 2017 for commercial multiperil insurance, according to S&P Global Market Intelligence data. Universal Insurance Holdings Inc. was top in the state for homeowners insurance, and Berkshire Hathaway Inc.'s GEICO Corp. recorded the most direct premiums written for private auto.
In a coverage formula originated from disasters past, insurers could wind up paying more for damage caused from a diminished storm. Consumer deductibles could be as low as $500 where Michael passes through as a tropical storm, leaving their carriers to pay for the rest of the wind or non-flooding water damage. For policyholders nearer the coasts who endure hurricane-strength winds, deductibles are typically a percentage, said Michael Barry, a spokesman for the Insurance Information Institute.
"They [deductibles] are usually thousands of dollars as opposed to $500 or $1,000," Barry said in an interview. A home with $100,000 in damage from a tropical storm triggers property coverage at perhaps $500 or $1,000. The homeowner's cost for the same amount of damage from a weather service-designated hurricane might be 2%, or $2,000, before coverage starts.
Carriers with business along the Atlantic and Gulf coasts sought and received the wind speed-based deductible structure from regulators following the devastation of Hurricane Andrew in 1992, Barry said.
Buckingham Research analyst Amit Kumar believes that reinsurers could be exposed to steeper losses from Hurricane Michael than from Hurricane Florence, which hit primary carriers more severely. Florida insurance coverage often has lower limits and more reinsurance cover for carriers, Kumar wrote in an Oct. 9 research note to clients. Also, claims from private and commercial auto tend to be lower, as given sufficient notice, owners usually drive vehicles out of the impact zones, the analyst said.
He listed Munich Re Co., Berkshire and Everest Re Group Ltd. as the companies with the biggest Florida reinsurance market shares in 2017, on a gross exposure basis.
Michael's projected path tracks closely with that of Hurricane Hermine in September 2016. Economic losses from that storm came in at around $550 million, while insured losses totaled about $80 million from about 15,000 claims, Kumar said.
Homeowners insurance generally covers damage from wind, while the National Flood Insurance Program covers flood damage. Comprehensive auto policies typically cover vehicle damage from wind or flooding.