Florida Banking December 2023

BANCSERV ENDORSED PARTNER: ZURICH NORTH AMERICA

HURRICANE RESILIENCE BEGINS WITH MITIGATION PLANNING

F LOANS AND INSURANCE CAN HELP IN STORM RECOVERY, BUT THE BEST PLANNING MAY HELP ENSURE THERE IS LESS TO RECOVER FROM AFTER A MAJOR EVENT. L O R I D A

R

S

E

K

A

N

S

A

S

O

B

C

I

A

T

I

O

N

BY STAN BERNARD, HEAD OF FINANCIAL INSTITUTIONS AND PROFESSIONAL SERVICES, U.S. MIDDLE MARKET, ZURICH NORTH AMERICA

F loridians are a very resilient people. Severe weather is no stranger to them, and they are probably better prepared to respond to and recover from natural hazard events than the populations of many other states. As the devastation caused by Hurricane Ian in 2022 showed, however, no amount of experience in dealing with hurricanes, tropical storms and related flooding can prevent massive damage and even casualties when storms of a certain magnitude hit. Ian was a Category 4 storm when it hit southwestern Florida, and the resulting catastrophic storm surge, wind damage and other impacts led to over 150 deaths and more than $112 billion in damage.¹ It was not only Florida’s costliest hurricane, but it falls behind only Hurricane Katrina (2005) and Hurricane Harvey (2017) among the costliest in U.S. history.² Strictly seen through an insurance prism, Ian was the second most costly natural hazard event on record.³ According to the National Oceanic and Atmospheric Administration’s ACE (Accumulated Cyclone Energy) Index, cyclones have risen in intensity over the last two decades and 10 of the most active years for hurricanes over the last 70-plus years have occurred since the mid-1990s. 4 Much of the scientific community sees this as a climate change indicator, as changes in sea surface temperature are tied closely to storm intensity and those temperatures have reached record levels. 5 So, it’s expected that major storms will become more common in the near future, making living and operating businesses in areas most prone to impacts more difficult, and protecting and/or rebuilding property in those areas far more expensive. The insurance industry is not immune to this trend, as news of some insurers exiting the property market in high-risk states makes clear. Commercial insurance (such as coverage provided by Zurich) has so far been less drastically affected than residential insurance, but

no sector has gone untouched. Protecting the larger shared risk pool that allows insurance to work may, unfortunately, require reduced capacity from some providers and rising premiums for many policies. Disasters increase loan demand, and FEMA and Small Business Administration disaster loans have helped many, but it’s not a long-term solution for properties likely to be impacted by more than one storm. For banks in states like Florida, lending can help offset other weather-related losses for the business, but customers’ capacity for repayment may diminish if they experience multiple disasters. As vital as loans can be in urgent circumstances, they shouldn’t be seen as a substitute for insurance. There are some steps to helping protect the property insurance market for customers and providers in states like Florida. One is a greater scrutiny on avoidable cost-drivers such as widespread and sometimes frivolous lawsuits against insurers. According to an AP article published last year, Florida accounts for almost 80 percent percent of U.S. homeowners’ insurance lawsuits but only 9 percent of all homeowners’ insurance claims across the country. 6 That’s an imbalance that part of state legislation passed last December seeks to correct. Still, the most effective path to building greater resiliency amid escalating climate volatility is not risk transfer, but risk mitigation — including looking at what’s working for risk mitigation in states like Florida. The story of how the Babcock Ranch community came through Hurricane Ian provides a lesson in how innovative thinking and sound planning — well beyond simply meeting required building codes — may make continued occupancy in high-risk areas more viable. Giant retaining ponds and streets designed to absorb flood waters helped protect the development’s homes from flooding. Underground power lines prevented

22 — FLORIDA BANKING THE VOICE OF FLORIDA BANKING