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Outdated Florida building codes to inflate Michael losses, says AIR

12th October 2018 - Author: Matt Sheehan

Property damage caused by Hurricane Michael, which made landfall in Florida as a high-end Category 4 storm on Wednesday, is likely to be exacerbated by the older building stock in the Panhandle region, according to AIR Worldwide, the catastrophe risk modelling arm of Verisk Analytics.

Hurricane Michael property damage. Source: AP Photo/Gerald Herbert

AIR noted that the majority of at-risk properties in the Panhandle region were constructed before 1995 using the less stringent Standard Building Code (SBC), which was later updated in response to Hurricane Andrew.

Most Panhandle structures are designed to withstand 3-second gust values of between 120mph and 140mph, which was well below Michael’s sustained wind speeds of 155mph and 3-second gust values of between 160mph and 175mph.

“Given that portions of the Panhandle were subjected to wind speeds in excess of this design level during Hurricane Michael, significant damage is expected to the building stock there,” AIR stated.

Initial estimates from catastrophe risk modeller CoreLogic put insured losses from Hurricane Michael at between $2 billion and $4.5 billion, while Karen Clark & Co. suggested they may reach $8 billion.

AIR estimated that there are approximately 450,000, 155,000, 945,000, and 722,000 homes in Florida, Alabama, Georgia and South Carolina, respectively, which will be affected by Hurricane Michael’s damaging winds.

Across these states, it calculated that there is approximately $217 billion, $69 billion, $432 billion, and $331 billion of value exposed to the damaging winds, including residential, commercial, automobiles, and other lines of business.

However, analysts are confident that losses will be manageable for re/insurers, with Willis Towers Watson claiming that losses will be comfortably absorbed, KBW saying that losses won’t be overly disruptive, and S&P asserting that the Michael will be an earnings event rather than a capital event.

AIR also claimed that damages from Hurricane Michael will be inflated by the absence of opening protection (i.e. hurricane shutters) on buildings in the Panhandle area, which was only required following the adoption of the Florida Building Code (FBC) in 2001.

This point is particularly relevant given the speed at which Michael developed and moved north, which limited the amount of time available to install protective devices even if a property had shutters available.

Widespread devastation has already been reported in Mexico Beach, Panama City, and many other communities following Michael’s landfall, and AIR expects to see extensive damage inflicted even on well-engineered buildings.

However, it also noted that, overall, the Panhandle contains less than 10% of the total risk by replacement value in the State of Florida, and less than 10% of the total number of single family and manufactured homes in the state.

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