Hurricane Drought Stirs Insurance Concerns

Hurricanes are a devastating weather phenomenon. They flood streets, destroy buildings and interfere with our electrical grids. While people often focus on boarding up their windows and stocking up their bottled water supply, another thing to consider is insurance.

Florida’s record breaking nine year hurricane dry spell has allowed public and private insurance companies to fatten their disaster cushions. Many would take this to mean our insurance market is well prepared to handle the next spell of hurricanes. However, there are some who are not so sure.

A common practice for insurance companies is to “reinsure.” This is when an insurance company essentially purchases insurance on insurance policies it holds. Common purchasers of this reinsurance are hedge funds and other high return seeking investors. 

These past nine years have witnessed an incredibly low interest rate environment, driving investors to seek risk. What this means for the insurance industry is that they’ve been able to reinsure the policies they hold very cheaply, passing off much of the risk to the purchasers of this reinsurance at what can be considered deep discounts.

When hurricanes make their way back to Florida, many are concerned of a reinsurance crisis, where these opportunistic investors will be swamped with claims they can’t pay. This would have devastating effects on Florida’s insurance market, with policy holders feeling the pain for years to come.

Additionally, many are concerned that people are being lulled into a false sense of security because the disaster funds are so healthy. Those worried suggest it wouldn’t take an impossible amount of hurricanes to deplete these funds, multiplied by the effect of reinsurance risk. While all of this is just speculation, unfortunately it will take a hurricane to determine whether we’re in trouble or not. Let’s hope we’re not!

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Nick Banks

Nick created Front Street Commercial Real Estate Group in 2002 and spent the first eight years developing and acquiring office and retail projects in South Florida as well as North Central Florida. In 2010 the focus of the firm was shifted to primarily serve third party clients and perform brokerage, property management and mortgage banking functions. Nick has personally developed and acquired nearly 200,000 square feet of office and retail properties in markets throughout Florida. Prior to founding Front Street, Nick was the Director of Finance and Dispositions for Stiles Corporation in Fort Lauderdale where he financed and sold over $500 million in commercial real estate. Before joining Stiles, Nick was an Associate Director at GE Capital Real Estate where he sourced over $200 million in financing throughout Florida. Nick is a graduate of the University of Florida with a degree in Finance and a concentration in Real Estate. He serves as a board member and current vice-chair for the United Way of North Central Florida where he also chairs the Development Committee. Nick is actively involved with the Gainesville Area Chamber of Commerce where he serves as a board member and committee member for the Council for Economic Outreach. He is also a recent graduate of Leadership Gainesville which is a year long leadership program hosted by the Chamber. He is a member of Grace United Methodist Church where he has served as finance chair and as a member of the leadership council. Nick serves as an advisory board member of the University of Florida Bergstrom Center for Real Estate Studies. Nick was recently named chair of the Gainesville committee for the North Florida chapter of Urban Land Institute (ULI). He is a licensed real estate broker in the State of Florida and is a long time member of the International Council of Shopping Centers.

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