Andrew’s Anniversary–Serendipity for Independent Agents

Hurricane Andrew was a tropical nightmare.

What began as a middling storm measuring the shore from afar arrived as a 175 mph freight train leaving a wake of desolation eight miles wide.

In Florida alone, over $26 billion in “insured” losses, 22 deaths, 63,000 homes destroyed, 175,000 homeless, 1.3 million families without electricity, widespread looting and untold numbers casting about for food and water. Forty thousand people simply picked up and left, never to return.

In some ways, the real disaster for independent agents occurred in the form of complete market chaos and a slew of insolvencies: eleven Florida domestics immediately went broke leaving 16,000 homeowners with damaged homes and no insurer to satisfy their mortgage requirements.

And, worse…virtually every other carrier began non-renewing entire property books,  leaving agents in south Florida, and many in the rest of the state, without a single willing property writer.

Bad as it was for independents…it was much worse for our competitors. After nearly a half century beating us up with bargain-basement pricing, foolhardy underwriting and give-away coverage, Andrew dealt captive agents and companies their comeuppance.

Along with one third of its countrywide earnings, Allstate lost all the surplus accumulated since opening its Florida doors.  That’s nearly $1.4 billion in profit, including investment income from all P& C lines…gone overnight!

State Farm was just as dire and since 1993 hasn’t gone after new/additional homeowners policies in eight of Florida’s largest coastal counties. Today it’s precarious Florida presence is maintained with a barely competitive product and sticker shock pricing.  And, our good neighbor channels thousands of customers to the state pool and/or to independent agents…every month!

Fifteen years later lawmakers learned the hard way that their Andrew reforms weren’t enough. During one sixteen month interval Florida was swarmed by eight Atlantic cyclones–averaging one every 60 days–spawning a mixed bag of political cures.  While some were actually detrimental to the return of a competitive market, many had the effect of further elevating independent agents in their traditional competition with direct writers.

For better or worse, Florida’s property market has migrated away from large national and super-regional carriers.  We now fully embrace an MGA system which, while it has drawbacks, nonetheless spawns mono-line homeowners carriers willing to write on the worlds hurricane highway and to do so exclusively with independent agents.

Before Andrew independent agents and their large national partners had completely forfeited personal lines to direct writers. With barely 30% of the homeowners market and not even an inclination for turning it around they focused on commercial multi-peril instead.   Since Andrew, however, Florida’s independent agents have gained market share each of the last twenty years and today dominate the residential property landscape with double the agency locations and multiple markets, including a wide open state pool.

And, while all this bodes well, the near-horizon holds even more serendipity for independent agents.

Citizens Property Insurance Corporation (Citizens), now insures 1.5 million policyholders and has a half a trillion dollars (that’s trillion with a “t”)  in total exposure. Arguably, it’s the most adversely selected risk pool in the world and is now poised to begin massive depopulation.

Where could 1.5 million property policyholders go?  Via well capitalized domestics and their consortium’s, both created by the aforementioned MGA system, it’s likely they’ll arrive in the offices of thousands of independent agents–hundreds who exist partially because of legislative repair work necessitated by hurricane Andrew and the 04/05 storms.

This, I predict will finally close the circle of competition between independent agents and direct writers–at least for residential property insurance in Florida.

As someone who has represented them for most of his adult life, I must say that, while many have suffered in its aftermath and some barely survived it’s wrath, Hurricane Andrew dramatically changed the competitive paradigm in favor of independent agents.

And, in my opinion…it’s going to stay that way!


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