Four Major Hurricanes Wipe Out P-C Profits
Insured damages topped $20 billion on 2.2 million claims, but industry was ready
Perhaps the biggest surprise of the summer was not that four powerful hurricanes hit Florida and other U.S. states in a two-month span, causing over $20 billion in damage. The biggest surprise was that the insurance industry took one hit after another relatively in stridetestimony to the lessons learned after Hurricane Andrew devastated Florida and its carriers in 1992.
Hurricanes Charley, Frances, Ivan and Jeanne together matched the losses resulting from Andrewthe worst U.S. natural catastrophe ever. The latest estimate from the Property Claim Services unit of the Jersey City-based Insurance Services Office Inc. is that the four storms prompted some 2.2 million claims, causing $20.5 billion in insured losses. The industry hit the ground with an army of about 15,000 adjusters to settle claims.
The industry benefited from changes made after Andrew wiped out the Florida homeowners insurance market in 1992. A Florida Hurricane Catastrophe Fund created in November 1993 is expected to absorb several billion dollars of this years losses. Higher deductibles were also established, further limiting insurer exposure. In addition, carriers have vastly improved their modeling systems and did a far better job spreading out their potential losses.
Deductibles, however, became a sore point this year. Homeowners hit by more than one of the four storms faced multiple deductibles, creating a potentially catastrophic financial burden all its own. In addition, with disasters striking the same insured properties so close together, it was hard for adjusters to determine which storm caused what damage, and some carriers waived the deductible after the first loss as a sign of good faith.
Still, limits on homeowner out-of-pocket losses might be made permanent by the state legislature to protect policyholders, and a battle with regulators looms over homeowners insurance rate hikes to make up for the massive summer losses.
Reproduced from National Underwriter Edition, December 16, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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