MIAMI, Aug. 22 (UPI) -- Hurricane Andrew ravaged Florida 10 years ago with a whopping $26.5 billion in damages, a figure topped only by the Sept. 11 terrorist attacks in New York and Washington, and one of the biggest victims was the insurance industry.
Of the $26.5 billion, $16 billion was insured. It sounds reassuring for homeowners, but not for the insurance companies that were plunged into a crisis. They reacted the only way they could.
"Insurance companies refused to renew homeowners' contracts, and in fact revoked thousands of existing policies," said Sen. Bill Nelson, D-Florida, who was elected Florida insurance commissioner a few months after Andrew.
"What shook up the market place so much was the understanding that if it (Andrew) turned one degree to the north and devastated downtown Fort Lauderdale instead of downtown Homestead, the cost would be $50 billion," he said.
As it was, 11 insurance companies filed for bankruptcy and dozens of others lost large chunks of their surplus.
Nelson said the state soon established a hurricane catastrophe fund to attack the problem.
"It was like a safety net. We were able to rebuild the homeowners' insurance market place, making sure insurance was available and affordable throughout the state," Nelson said.
But the insurance companies are still spooky.
State Farm, the state's largest insurer with 980,000 homes, continues to battle with the current insurance commissioner, Tom Gallagher, who ironically was commissioner when Andrew hit.
State Farm says it will no longer issue new homeowners' policies in Florida because the state won't approve a 22 percent increase. Gallagher pointed out State Farm already received a 14 percent increase in January and a 6 percent increase last year.
Allstate, State Farm's chief competitor, has received an average of 15.7 percent increases in the state after asking for 22 percent. Allstate hasn't had an increase since 1996, and officials believe that's a large part of the reason approval was granted.
Under the new rates, Allstate, which insures 750,000 homes in Florida, a customer paying $1,000 a year in insurance would see an increase of $157.
Allstate does not issue new policies in some of Florida's 67 counties, mostly on the coast, and in other cases issues new policies only when old policies are canceled.
The insurance problems caused by Andrew 10 years ago are not directly connected to the current situation, but the lesson was learned, and the insurers fear that next time it could be worse because property values are higher.
"A decade after the monster Andrew, south Florida remains extremely vulnerable to the cost of a big storm. In some ways south Florida is at an even greater risk," Nelson said. "A study shows if a hurricane struck at the same place with the same power as Andrew it could inflict one-third more damages than Andrew.
"And that's going into south Miami-Dade County in the region of Homestead. It's a relatively uninhabited area compared to the higher-density urban areas all along the Gold Coast (of southeast Florida)," he said.
The Legislature has begun funding a computer software model that could project hurricane losses.
Gerry Lemcke of the Catastrophe Perils Division of the Swiss Re America Holding Corp. in Zurich, and Armonk, N.Y., said such a model would provide a better assessment of the financial vulnerability of our society.
He said that would allow the insurance industry and government to spend more wisely the money set aside to cover risks.
"Given the fact that the potential financial risk will increase even without any increase in the number of hurricane events simply by adding exposure due to population growth and increase of wealth, the amount of capital to cover these risks could be much better used," Lemcke, told a Florida International University conference on Andrew.
Another important solution is building sturdier structures. While the state is embarked on encouraging the construction of hurricane-resistant buildings, critics say the legislature continues support of development in high-risk coastal areas.
One study conducted at the University of Wisconsin-Green Bay and the University of Colorado concludes: "Despite efforts of the state to resolve the insurance crisis, the situation may get worse as the value of properties exposed to potential wind damage continues to grow unabated."
The National Oceanic and Atmospheric Administration announced Wednesday that recent advances in science have resulted in the conviction that Andrew was a Category 5 hurricane -- winds above 156 mph -- with highest sustained winds of 165 mph. It had been classed as a Category 4 with 145 mph winds.
Since 1900, only two other Category 5 hurricanes have hit the United States -- Camille, which hit the Gulf Coast in 1969, and the Labor Day hurricane that hit the Florida Keys in 1935.
Insurance officials said that decision to elevate Andrew to a Category 5 would have no impact on the industry.
"The key is not the category it was or even how fast it was going. The key is how much damage it did," said Sam Miller, vice president of the Florida Insurance Council.
(This is the fourth story in a five-part series on Saturday's 10th anniversary of Hurricane Andrew.)