Insurers Face Torrent of Storm Payouts
While the storm that lashed the South and East Coast last weekend didn’t rival Hurricane Andrew for destruction, it will cost insurers hundreds of millions of dollars, continuing a string of catastrophes that have battered the industry and raising the pressure for premium increases.
A. M. Best Co., an insurance rating agency, estimated that the storm caused “upward of $800 million in insured damages,” with the bulk of the devastation in the Southeast.
Hurricane Andrew, by contrast, caused $16 billion in insured losses, making it by far the most severe disaster in U.S. history.
Other industry sources were more cautious about providing damage estimates, saying it was too early to tell.
“This latest storm is an unwelcome event for an industry that has been under siege with catastrophes for the better part of the last three years, and it will once again challenge the industry’s financial strength,” said John H. Snyder, senior vice president of Best’s property/casualty division.
As of Monday afternoon, 24 states, including the entire East Coast, fit the definition of catastrophe sites--places where insured property damage was expected to exceed $5 million, said Gary R. Kerney of Property Claims Services. The Rahway, N.J., trade organization surveys insurers to compile catastrophe-loss estimates, which the industry considers official. Kerney said the group would not have an estimate for several more days.
Kerney said the organization had not yet finished its loss estimate for last month’s World Trade Center bombing, but other sources put the figure at about $1 billion.
A vicious winter storm in December caused $650 million in damage to the Northeast. Last weekend’s storm lacked the severe flooding damage of the December storm, but its destruction was more widespread. Analysts were divided Monday as to which storm would ultimately prove more costly.
State Farm, the nation’s largest property/casualty insurer and the leading victim of Hurricane Andrew, with losses of $3.6 billion, took advantage of early forecasts of last weekend’s storm to send informational packages to television stations throughout the South.
By advising homeowners to keep their faucets open a trickle or wrap water pipes with insulation where possible, State Farm hoped to head off some of the millions of dollars in losses from burst pipes that typically accompany severe cold in the South. Nevertheless, early reports of claims from Alabama indicated that the state was hard hit by such damage, a spokesman said.
Insurance analysts such as Gloria L. Vogel of Shearson Lehman Brothers expected the weekend storm to intensify pressure on property insurers to raise prices, which have been nearly stagnant for several years. “This is just more icing on the cake,” she said.
In the wake of Hurricane Andrew, reinsurance companies have sharply raised the prices that they charge insurers for disaster coverage, further adding to the pressure for price increases.
