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Underwriting

A closer look at Florida

Florida has always been a critical state for PCG. It’s also one of the most challenging when it comes to underwriting. For starters, Florida is a peninsula; it’s particularly prone to hurricanes, tropical storms and other severe weather.  While the state covers less than two percent of the continental United States’ land mass, it’s been hit by seven of the ten costliest hurricanes in U.S. history[1]

A number of states have coastal exposure, so why is Florida uniquely challenging for insurance companies?  There are three primary reasons:

1) Risk concentration 
Many residents—especially our target customers—choose to live in coastal areas, where the risk of hurricane damage is greatest.  Florida has approximately $2.46 trillion in total coastal exposure[2], the most of any state by far.  In fact, by comparison, the combined coastal exposure of Georgia, South Carolina, North Carolina, Virginia, Mississippi, Texas and Louisiana is around $1.83 trillion[3]

2) Underwriting complexity
Additional challenges exist when underwriting for hurricane exposure.  When deciding if and how to cover a home, we assume “when” a hurricane will hit, not “if.” We also need to ask ourselves:

  • Is the home built to withstand hurricane-force winds?
  • Is it built to survive intense flooding and storm surge?
  • Are our rates adequate for the hurricane exposure in this area?

3) Regulatory environment
Due to the high potential for catastrophic damage, the state government created several mechanisms to underwrite hurricane risk, including the Florida Hurricane Catastrophe Fund (FHCF).  The FHCF is a state-run reinsurance program where all private insurers writing admitted personal property business, including AIG, are required to participate. While there are benefits to participating in the FHCF, it is a significant expense for AIG.  

Navigating Florida’s complexities successfully means we can offer the capacity and coverage that our producers and customers expect from PCG. Complementary risk management services, such as our Hurricane Protection Unit, also help coastal customers rest easier.

[1] www.nhc.noaa.gov/pdf/nws-nhc-6.pdf
[2] www.airworldwide.com/_public/images/pdf/AIR2008_Coastline_at_Risk.pdf
[3] http://edr.state.fl.us/population.htm