Should Storm Damage Estimates Include Mold?

By Steve Tuckey

NU Online News Service, Oct. 11, 4:11 p.m.EDT?Industry estimates of insured damage losses from thecurrent hurricane season run a wide gamut in part due to whatfactors the experts are using for their calculations, according tomodeling firm representatives.[@@]

It remains unclear, they said, just what role such possible losscauses as mold and catastrophe inflation play in determining thosefigures that are so widely quoted.

Last week the chief U.S. underwriter for Swiss Re said damagelosses may hit $32 billion, nearly 25 percent higher than theindustry consensus, due to modelers failing to take into accountmold damage and inflationary items.

Mike Gannon, spokesman for the Boston-based AIR Worldwide, saidhis modeling firm accounts for damage to home contents that resultsfrom rain, but not from "mold that is after the fact."

In any event, he noted his organization put damage estimatesfrom the four storms at between $19 billion and $35 billion, so hedoes not see any underestimation.

But Mr. Gannon said what he terms "demand surge" or postcatastrophe inflation and increased adjustment causes areconsidered in AIR's damage estimates.

John Eager, senior director of property claims for the PropertyCasualty Insurers Association of America, said it is often hard tomake the distinction between mold and water damage. And so the factthere is no breakout is not all that significant.

"I don't think there is a separate group of claims called ?moldclaims.' There are wind-driven water claims that are associatedwith water inside the home," Mr. Eager said.

He disputed the Swiss Re contention that somehow storm-relatedmold claims will trickle in over a period of months.

"I think they will show up right away," he said.

But in general, PCI has expressed concern with some damageestimates coming from the modeling firms due to what he termedtheir "vast" range.

He recalled the National Association of Insurance Commissionerslooking into the issue two years ago. But in the end no action wastaken.

Tom Larsen, senior vice president of the Oakland, Calif.-basedEQECAT, said that initial loss damages are calculated primarily forthe benefit of carriers trying to determine how many adjusters andhow much funding will need to be readily available.

While agreeing that mold is definitely a factor when a series ofdrenching rains hits an area and catastrophe inflation is a realproblem, they cannot be factored all that accurately into initialestimates, according to Mr. Larsen.

"It is very difficult to do it," he said. "On an average we havea very good way to predict and help people plan for it, but as to aspecific outcome, it is very difficult."

In related news, Cincinnati Financial announced Monday thatthird-quarter pretax catastrophe losses net of reinsurance willcome to $94 million. The impact on the quarterly property-casualtycombined ratio, after an $11 million reinsurance premium, would beabout 13 percentage points.