A new report from reinsurance broker Lockton Re has highlighted how building codes in Florida are seen as a significant factor in reducing the potential insurance industry loss from hurricanes.
Improvements in recent years have seen modelled loss estimates drop, the broker said.
A new report recently released from the company showcases the importance of property construction dynamics in understanding the increasing potential for insured losses in hurricane landfall locations.
“Since 1992, seven hurricanes have broken Andrew’s inflation-adjusted loss record. Six of these have made landfall in the past seven years as changes in population, exposures, climate, inflation, and social factors have drastically increased losses,” said Claude Yoder, Global Head of Analytics, Lockton Re.
Adding: “While severe hurricane frequency has increased, building construction changes have helped shield owners and (re)insurers from even greater losses.”
However, while population density has been increasing, other factors have also been influencing property value and potential repair costs, the broker noted.
Other factors include: inflation, supply chain constraints, and wage growth.
At the same time, as macroeconomic factors normalize and general inflation is lower than a year ago, sticky inflation continues to persist and is still at its highest level since the early 1990s.
Lockton Re also noted that inventory purchased during shortages will need to work its way through the supply chain while longer-term costs and contracts will also factor in uncertainty and fear of a resurgence of higher costs.
The broker also explained that the impact of building codes in Florida are also a major factor too.
“Lockton Re tested a notional Florida portfolio, with losses decreasing significantly just from building code changes between 1990 and 2000. For more recent years, loss estimates continue to drop as building codes improved,” commented Brendan McCann, Senior Catastrophe Modeler for Lockton Re.
Nevertheless, while the attraction of coastal areas plays a big factor in increasing population density in hurricane prone areas, building codes are working as expected to lower property damageability, Lockton Re noted.
The broker also stated that homes built to recent specifications will see as much as 90% less damage over their “out of spec” counterparts.
Lastly, Lockton Re said that from a re/insurance perspective, the composition of a portfolio of buildings and homes is critical to understand its risk profile.
