Dealing with Disasters: A Lesson from Hurricane Andrew
By AIR Worldwide Staff
Twenty-five years ago, on August 24, 1992, Hurricane Andrew made its first U.S. landfall, 17 years after the previous landfall of a major hurricane in the state of Florida. Andrew was only the third Category 5 hurricane to make landfall in the U.S. since 1900. This storm caused an estimated USD 15.5 billion (1992 dollars) in total insured losses—USD 15.0 billion in Florida—and reportedly resulted in the insolvency of 11 insurance companies. The most costly natural disaster in U.S. history at the time, Andrew changed forever how (re)insurers approach hurricane risk management, spurring the growth of the emerging catastrophe modeling industry.
Hurricane Andrew’s track
The storm system that would become Hurricane Andrew formed on August 14, 1992. On August 23, Andrew struck the Bahamas as a Category 5 storm, weakened to Category 4 over land, and then regained Category 5 strength in the warm Florida Straits. At 4:40 a.m. on August 24, Andrew slammed into Florida’s Elliot Key and minutes later made a second landfall at Homestead Air Force Base, just east of the city of Homestead.
In a few hours, Hurricane Andrew entered the Gulf of Mexico, reintensified, and damaged or destroyed nearly 90 offshore platforms en route to a third U.S. landfall on August 26 as a Category 3 storm, in south-central Louisiana.
Hurricane Andrew’s wind speeds and damage
After leaving four dead in the Bahamas, Hurricane Andrew made landfall in South Florida with sustained winds exceeding 160 mph, a 14-mile radius of maximum wind, and the fourth-lowest central pressure of U.S. landfalling hurricanes to date, 922 mb.
In Homestead, 27 miles southwest of Miami, the compact, powerful storm stripped bare many city blocks, while destroying nearly all mobile homes and a third of site-built homes in its path. Local marinas experienced extraordinary damage, and more than 1.4 million households in the region lost power.
The most destructive hurricane to hit Florida since Hurricane Betsy in 1965 and only the third Category 5 hurricane to make U.S. landfall since 1900, Andrew devastated Dade County and caused USD 15.0 billion (1992 dollars) in insured damage statewide.
Since 1992, there has been a significant increase in the number and value of exposed properties in Florida, where close to 80 percent of the total insured value is located in coastal counties. The Miami metropolitan area has the highest population concentration in the southeastern region.
What would the losses be if Andrew occurred today?
According to the AIR Hurricane Model for the United States, if Hurricane Andrew were to recur today (with today’s building inventory at risk) the storm would cause an unprecedented USD 56.3 billion total loss (Florida and Louisiana combined)—USD 51.7 billion in Florida alone. That’s a 263 percent increase over the 1992 Andrew for total loss, a 245 percent increase for Florida.
While the resilience of coastal properties in Florida has risen since 1995 due to the enactment and enforcement of strict building codes, the high losses for a 2017 recurrence of Andrew reflect the extraordinary increase in the number and value of properties at risk since 1992, as well as an escalation of construction costs.
In recognition of the 25th anniversary of the costliest natural disaster in U.S. history at that time, AIR published an interactive feature on the event, lessons learned, and this powerful storm’s effects on the reinsurance industry, the catastrophe modeling industry, and the development of insurance-linked securities as an asset class. We also explored what the effect would be if an Andrew-like storm had made landfall closer to Miami. To learn more, please click here.
But a lot has happened since then, as they say. This hurricane season has produced Hurricane Harvey, which struck Texas with record flooding. Then, Hurricane Irma broke all kinds of hurricane records and struck Florida. And Maria wreaked havoc in the Caribbean, heavily impacting Puerto Rico. The catastrophe modeling framework AIR established five years before Hurricane Andrew made landfall continues to help assess and manage extreme event risk and was undoubtedly applied during this active hurricane season. Catastrophes cannot be predicted, and the pitfalls of relying on past history or preparing for a select set of events are all too apparent. Disciplined risk management must take the long view. Probabilistic modeling is the only tool currently available that provides a comprehensive and robust perspective on possible losses.