State Farm will cancel hurricane coverage in Florida at peak of 2010 season

NBC News reported yesterday that on August 1, State Farm will cancel homeowners' insurance coverage for about 125,000 customers in hurricane-prone Florida. But NBC did not explain why State Farm probably chose that date to end its coverage.

Anyone who’s lived in Florida any length of time knows that the worst hurricanes usually come after August 1. By that date, the summer sun has been heating the tropical Atlantic for several months, and there’s plenty of warm water to fuel the monster storms that usually form between mid-August and mid-September. Although very powerful hurricanes have formed in July, the memorable monster storms such as Hurricane Andrew, Hurricane Camille and the unnamed killer hurricanes of 1926, 1928 and 1935 all formed after August 1. And the five major hurricanes that affected Florida in 2004 and 2005 and inflicted more than $40 billion in damages all came after that date.

State Farm was required by law to give policyholders at least six months’ notice of cancellations, NBC reported. The company could have started that six-month countdown at any time. But any insurance actuary knows that the likelihood of a catastrophic hurricane striking Florida – and the subsequent payout of billions of dollars in damage claims – is far greater after August 1. So it doesn’t seem unlikely that State Farm decided to reduce its exposure to damage claims by ending its coverage when the worst storms usually form.

There also are early indications that the upcoming summer is going to be more active than 2009. A weather phenomenon known as El Niño kept the lid on last summer’s hurricane season by creating upper-level winds over the Atlantic that disrupted hurricane formation throughout the summer. But meteorologists expected the El Niño to dissipate during the winter of 2009-10, and there are clear signs that that’s what is happening.

So if those upper-level winds are gone, more hurricanes are likely to form in the tropical Atlantic this summer.

NBC News also reported that State Farm will help the customers it’s dumping find coverage with other agencies.

Photo of downtown Punta Gorda, Florida after Hurricane Charley in August 2004 is by Mark Wolfe for FEMA.