Insurers escape Hurricane Charley

By Stephen Evans BBC North America business correspondent

It's hard to see the silver lining to the clouds over Florida at the moment. Soaking debris and destroyed homes, bereaved families and a rearranged landscape are the testament to Hurricane Charley's power.

The hurricane, though bad, was not as bad as expected

For one group, though, it's not as bad as it might have been: insurance companies learnt a lesson from Hurricane Andrew in 1992 and changed their practices to soften the financial damage.

Some of the companies left after that disaster twelve years ago, deciding that hurricanes plus Florida were too unattractive a combination.

But the bigger ones stayed - and changed the way they insured people and property.

Spreading the risk

Firstly, Hurricane Andrew persuaded them to steer clear of some of the higher risks on the coast.

Secondly, they have off-loaded much more of the remaining risk to re-insurers: that is, the insurance companies who insure insurance companies.

In other words, the industry as a whole spread the risk far more widely.

The impact on large insurers is manageable

On top of that, the state of Florida set up the Hurricane Catastrophe Fund.

The combination means that one of the big American insurance companies, State Farm, reckons its losses will be limited to $200m (£109m) - even though it insures about one in four Florida homes in the affected areas.

The other lesson the insurance companies learnt after Hurricane Andrew was to change their policies on offer to cover a smaller proportion of the total value of a destroyed home or its contents.

Better than feared

Finally, the hurricane, though bad, was not as bad as expected, and certainly not as damaging as Hurricane Andrew.

The initial weather forecast had it cutting through the highly-populated Tampa-St Petersburg area, but it swerved at the last moment and caused less damage.

It also weakened sooner than expected, and was smaller in size than first feared.

Radar and infrared imagery also showed the radius of the high winds to be less than six miles, far narrower than expected from a Category Four hurricane.

Impact absorbed

The financial data echoed a sigh of relief that Charley didn't do its worst: the price of stock of insurance companies fell by about 3% before the impact and rose by 6% after it.

Insurance premiums are unlikely to jump

The best estimate is that the insured losses from Hurricane Charley will add up to no more than $10bn, a sizable sum, but far short of the damage caused by Hurricane Andrew and not enough to break the insurance companies.

On top of that comes uninsured losses which are likely to double that figure as a total cost to the economy.

The impact on large insurers is thus manageable, according to Catherine Seibert, analyst with the credit ratings agency Standard and Poor's.

She pointed out that costs in the range of $5bn to $10bn are well below Andrew's bill of $20bn to $25bn.

"Since Andrew, US insurers have tightened policies," she said.

"Also, a lot of the losses will be paid by the Florida Catastrophe Fund, which was set up exactly for things like Charley."

The result is that some insurance companies might show losses, but that the impact could be absorbed.

The good news for the residents of Florida is that insurance premiums are unlikely to jump - which is no consolation to those flocking to supermarkets and schools and all the other centres being used by insurance companies to assess their claims for ruined property.

The old English proverb may say that "it's an ill wind that blows nobody any good", but this particular ill wind blew no good at all to many thousands of people.