CoreLogic: 30 Years After Hurricane Andrew, Problems Persist for Insurance, Mortgage Industries

CoreLogic, Irvine, Calif., said in the 30 years since Hurricane Andrew devastated much of South Florida, the risk management landscape has evolved “tremendously.” But many questions remain—and with South Florida still a popular place to live, many of the risks from 1992 still exist today.

In a report, CoreLogic estimates insured losses from another Hurricane Andrew (Florida only) would surpass $70.1 billion from wind alone, with an additional $2.7 billion in loss from coastal flooding (i.e. storm surge). By comparison, total damages from Andrew in 1992 totaled a then-record $25 billion.

“(Re)insurance providers would not be alone in feeling the effects of another Andrew-like event,” the report said. “The real estate, lending and tourism industries in South Florida would also be impacted substantially.”

August marks the 30-year anniversary of Andrew, one of the most infamous U.S. landfalling tropical cyclones in recorded history. On August 24 at 4:40 a.m. ET, Hurricane Andrew made its first U.S. landfall as a Category 5 storm over Elliot Key on the southeastern edge of Biscayne Bay; 30-minutes later, it reached Homestead, a city just under 30 miles from downtown Miami. Andrew struck with maximum sustained wind speeds of 150 mph with gusts up to 170 mph.

Andrew was the strongest storm to impact the U.S. since Camille in 1969. Economic damages (in 1992 dollars) in Florida alone were $25 billion—of which only $15 billion was insured), spread across southern Miami-Dade County from Kendall to Key Largo.

Although the brunt of Andrew’s impact was borne by the South Florida residents whose homes were in the direct path of Category 5 hurricane wind speeds, the effects rippled out far beyond into other industries.

The resulting impact of Hurricane Andrew was tumultuous for the property insurance market. Insurers, who had up until 1992 maintained profitable loss ratios (ratio of claims paid to premium collected) and adequate reserves did not anticipate the possibility of Andrew-like losses from a single event.

The severity of claims was material enough to force seven domestic insurance companies (those domiciled in Florida) and one foreign company into insolvency. Several others required additional capital from parent companies to cover claims and avoid total insolvency. CoreLogic said the effects were felt worse still by the policy holders, who, in addition to having their homes leveled, either had their policies non-renewed or were subjected to unaffordable rate increases, requiring state lawmakers to step in.

“Before Hurricane Andrew, catastrophe modelers insisted that the reality of a $10+[billion] hurricane event was possible,” the report said. “Unfortunately, it was not until after that industry professionals realized the importance of accurately measuring risk.”

In examining the potential impact of another Hurricane Andrew today, CoreLogic estimated 3.7 million single-family residences and multifamily residences, with a value of $909.3 billion, would be within Hurricane Andrew’s wind-field if history repeated itself in 2022. Nearly 120k SFR and MFRs would be subjected to wind speeds surpassing 130 mph (Category 4 and greater), which are severe enough for material building damage. CoreLogic estimated that insured losses from another Hurricane Andrew (Florida only) would surpass $70.1 billion from wind alone with an additional $2.7 billion in loss from coastal flooding (i.e., storm surge).

The report said the mortgage industry would acutely feel the impact. “For those who are homeowners, the result of a financial catastrophe results in mortgage delinquency rates increasing significantly as people, crippled by expenses and lost wages, fail to make monthly mortgage payments,” it said.

For example, after Hurricane Laura made landfall in Lake Charles, La., in 2020 the already high delinquency rate shot up from 9.8% in August 2020 to 16.1% in September 2020, an increase of 6.3 percentage points. The same phenomenon occurred after Hurricane Ida in 2021. Both home mortgage delinquencies and shelter costs rose because Hurricane Ida caused severe property damage and put significant strain on the community. In Ida’s case, the transition rate from current-to-30-day delinquency, which had been running at about 1% per month, spiked to over 7% in the Houma metro, La., in the month following the storm. The percentage of borrowers in Houma who were at least three months behind on payments jumped by 50%, rising from 4.4% in September to 6.6% in November, even though serious delinquency rates declined 16% nationwide during that same period. Six months after Ida, the serious delinquency rate in Houma remained above Louisiana’s and was double what it had been in the months prior in early 2020.

“If Hurricane Andrew were to occur again today, given the severity of the event and the now higher exposure, we would expect to see significant increases in mortgage delinquency,” CoreLogic said.