Claims News Service, Sept. 28, 3:30 p.m. EDT — Hurricane Rita could mean more than property damage losses for insurers in the energy and chemical manufacturing sector, insurance brokers said.

“The big issue facing the chemical industry now is restarting operations,” said Jim Walters, managing director, chemical industry practice for Aon, which could trigger business interruption policies beyond the energy sector.

Plants were shut down and evacuated, sparing facilities and lives, but now the problem is getting the fuel supplies that the plants need to operate. This will be a challenge with rail lines and highways damaged or blocked by flooding, Mr. Walters said.

The ripple effect, he pointed out, will be other manufacturers dependent upon the chemical plant products will have to cease operations.

“If they can't produce and sell, they will sustain their own business interruption,” he pointed out.

Other insurance exposures that could be affected by Rita, besides property and business interruption, would be marine cargo, trucking and ocean marine, and possibly environmental, said Mr. Walters. But the main exposure would be property and business interruption, he said.

Pricing in this line could see some increases after a period of some stabilization of pricing, he explained.

“In our world, we are the first to get hit with the hard market and the last to see the soft,” Mr. Walters noted.

Capacity would not be a problem, he said adding companies that have more wind exposures “generally see more scrutiny than others.”

When it comes to loss control, Mr. Walters said the chemical industry is generally ahead of all others due to the volatile nature of the products it produces.

“As an industry, it pays attention to these issues,” he observed.

Bruce Jefferies, managing director of Aon Natural Resources, said all production in the Gulf of Mexico was shut down because of Hurricane Rita, which reached Category 5 status on the Saffir-Simpson scale in the Gulf, with sustained winds exceeding 160 mph at one point.

There were reports that some oil production platforms in the Gulf were severely damaged and some were missing.

Chevron reported that one of its platforms, Typhoon, located in 2,000 feet of water approximately 165 miles South-Southwest of New Orleans, was severed from its mooring and suffered severe damage. Chevron said it was located and is being secured.

“Rita was every bit as damaging a storm as Katrina from an offshore standpoint, if not worse,” said Mr. Jefferies.

One modeler, Risk Management Solutions, put offshore platform damage and loss of production from Rita at between $1 billion and $2 billion.

Onshore, the story is different. Rita bypassed a good portion of the oil refining industry in Houston and Galveston, Texas, Mr. Jefferies pointed out.

Where the storm did come ashore, such as in Beaumont, Texas, refinery damage appeared to be minimal, “which is excellent news,” he said.

Until all the offshore drilling stations are inspected, however, both from above and below the water, any figures on insured loss from Rita “would be a wild guess,” he confessed. Another complicating factor, he noted, is that the resources to survey and repair these damaged facilities were stretched thin by Katrina, and it could be months before it is done.

This article originally appeared in The National Underwriter P&C.

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