Unabated Coastal Development Means Trouble for Insurance Industry |
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Written by U.S. Insurance News
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Friday, 18 May 2007 |
Residential and commercial development continues unabated on Florida’s oceanfront, and to at least one observer, that means trouble for the insurance industry.
Residential and commercial development continues unabated on Florida's oceanfront, and to at least one observer, that means trouble for the insurance industry.
Robert Hartwig, Ph.D., president and chief economist of the Insurance Information Institute, believes construction of new high-rise developments on vulnerable barrier islands will only exacerbate Florida's property insurance crisis.
"Despite the well-known vulnerability to hurricanes and rapidly escalating property values, coastal development in vulnerable areas continues at a furious pace," said Hartwig, who testified April 11 before the U.S. Senate Banking Committee on the effect of coastal overdevelopment on insurance rates. "Adding billions of dollars in new insured exposure will further burden Florida's already precarious property insurance market."
The Florida Coalition for Preservation has identified a "poster child" for the problem. Briny Breezes, a development projected to be valued at more than $3 billion, would bring population densities up to 2000 percent higher than those found in neighboring communities. The proposed development would put 5 million square feet of multi-family housing with multiple 12-to-20-story high rises on a 43-acre beachfront site. Nine hundred condominium units, 300 timeshares, a 349-room hotel, restaurants, shopping and a yacht marina would bring thousands of new residents and workers to the storm-prone barrier island.
"We should not be playing Russian roulette," said former Congressman Tom Evans, chairman of the Florida Coalition for Preservation. "Briny Breezes' vulnerable, barrier-island home sits in the middle of hurricane alley, and it's a question of when, not if, this area will be hit by a storm. In the current market environment, I am not aware of a single private insurer who would agree to take on more than $3 billion in new risk to cover a high-density, high rise development on the shifting sands of a South Florida barrier island."
Enter Citizens Property Insurance Company, the state insurer of last resort, where Briny Breezes might very well have to find coverage. Evans said that would only put greater risk onto taxpayers, further strain the insurance market and increase rates for policyholders throughout the state.
A study by Risk Management Solutions (RMS), the nation's largest hurricane modeling firm, drove home the point recently. If the United States were hit with a catastrophic hurricane, the study predicted, there is nearly a 1-in-5 chance it would strike the West Palm Beach-to-Boca Raton metropolitan area. In fact, according to the RMS model, Florida bears more than 80 percent of the nation's risk from a single massive storm.
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