- The Washington Times - Tuesday, September 6, 2005

Rising damage estimates from Hurricane Katrina put the total economic impact at close to $100 billion with about $20 billion to $50 billion of it covered by insurance.

Already, there is little doubt the hurricane that devastated New Orleans and the surrounding area is shaping up as the most expensive natural disaster in American history.

“In the affected areas, some companies will have to make tough underwriting decisions and many will have to write fewer policies or increase rates,” said Joseph Annotti, spokesman for the Property Casualty Insurers Association of America.

However, the risk is small that consumers outside the Gulf Coast will pay higher homeowner or automobile premiums as the loss spreads throughout the insurance industry.

“These hurricanes, as severe as they are, have no impact on areas not prone to hurricane risks,” said Robert Hartwig, chief economist for the Insurance Information Institute, a trade group. “This storm puts additional pressure on insurance rates in these [affected] areas. No insurance commissioner in any state is going to approve a rate increase based on the experience of what happened in some other state.”

Major property insurers along the Gulf Coast include Allstate Corp., St. Paul Travelers Cos. and State Farm Mutual Automobile Insurance Co.

Hurricane Andrew, the costliest storm to date, resulted in an inflation-adjusted $20.9 billion of claims after striking Florida in 1992, according to the Insurance Information Institute trade group.

Last year’s four Florida hurricanes, which led to $22.8 billion of claims, nearly wiped out Allstate’s third-quarter profit, and cut St. Paul Travelers’ profit by more than half.

“I would expect that in total there will be more than a million claims arising from this event,” Mr. Hartwig said. “It’s possible we could see 2 million claims.”

State Farm, the biggest insurer of homes in Louisiana and Mississippi, has received 150,000 claims so far, company officials said. It has opened several mobile claims offices, and temporarily suspended billing as well as cancellations of policies for nonpayment.

Allstate is letting many customers in Alabama, Louisiana and Mississippi defer premium payments by up to 90 days. Hartford also is suspending cancellations of many policies for nonpayment, and St. Paul has set up five mobile claims offices.

Reinsurers, which help limit insurers’ storm exposure, are themselves expected to post big losses from Katrina.

Munich Re, the biggest reinsurer, on Friday said its original claims estimate of $501 million likely was too low. No. 2 reinsurer Swiss Re has said it expects $500 million of claims, and No. 4 Hannover Re expects $313 million.

Although homeowners’ insurance is required for anyone with a mortgage on their home, only 40 percent of Gulf Coast homeowners have flood insurance.

Standard homeowners insurance covers damage only from fire and wind, though commercial or automobile insurance also covers flood damage.

A typical homeowner’s insurance policy in the New Orleans area would cost about $600 to $700 a year, Mr. Hartwig said. Flood insurance could add another $300 per year.

In the Washington area, homeowner’s insurance typically runs $700 to $1,000 per year for a single-family home.

In South Florida or the Gulf Coast of Texas, where hurricane damage is more frequent, rates could be more than twice as high as in New Orleans, he said.

Unlike previous hurricanes, Katrina is more likely to prompt claims by businesses, particularly in New Orleans.

“Basically, we have abandoned a fairly large American city, which could result in a lot of business-interruption losses,” Mr. Hartwig said.

• This story is based in part on wire service reports.

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