Property Insurance Industry Gets Battered by Irene

August 29, 2011

Blizzards in the Midwest, fires in the Southwest, deadly tornadoes in the Southeast, flooding along the Mississippi, and now hurricanes — it’s been a tough year for the insurance industry. In fact, the rise in natural disasters this year has led the insurance industry to face one of its worst years on record, with Hurricane Irene damage over the weekend likely topping $7 billion alone — that would make it among the 10 costliest catastrophes in the country’s history, according to estimates given to The New York Times by the Kinetic Analysis Corp.

Irene brought mostly coastal flooding and heavy rains along the East Coast over the weekend. Even though Hurricane Irene was downgraded to a tropical storm by the time it reached New York Sunday, experts say the largest amount of property losses likely will come from New York City and New Jersey — two states that boast the highest dollar coastal property on the Atlantic Coast. 

In the Carolinas, Hurricane Irene damages were estimated to average $200 million to $400 million, according to EQECAT Catastrophe Modeling. 

The “unprecedented” levels of natural disasters this year had already caused the American insurance industry by the end of June this year to exceed its disaster-related losses from all of 2010, according to A.M. Best Company, in its report on the industry. Tornadoes alone have cost insurers about $18 billion so far this year, with most of the claims involving damage to homes and cars, Egecat reports. 

With forecasters predicting an above-average hurricane season this year, insurers’ losses are expected to grow even more too.

Charles C. Watson Jr., president of Kinetic Analysis, told The New York Times that Irene came at a time when home owners ''can't handle another shock to the budget.''

''Their reserves are lower than normal, insurance won't be covering as much, government budgets are stretched, and there is a question mark as to if banks will want to loan money to repair or cover operating losses in vulnerable areas,'' Watson says. 

He says that Irene likely caused more uninsured losses than typical of hurricanes. That’s because a lot of the damage was caused by rain and coastal flooding, events that private insurers rarely cover, he says.

Source: “Irene Adds to Bad Year for Insurers,” The New York Times (Aug. 29, 2011)

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