An insurance industry economist said losses from Hurricane Katrina will not change the overall soft market cycle, though locally, some hardening may result from the storm.
Robert P. Hartwig, vice president and chief economist with the Insurance Information Institute Inc., in New York, said he did not see a change in the soft market cycle, noting there is still plenty of capacity available globally in the insurance market.
He noted that the industry suffered $23 billion in insured losses last year from four hurricanes and that did not affect the cycle.
"An event like this has a localized effect," said Mr. Hartwig. "Yes, it creates local, hard property markets, both commercial and for homeowners in the Gulf Coast region, and southeast Atlantic coast, and firmness in reinsurance prices for commercial property catastrophe coverage, but on a regional basis."
He agreed with others' observations that the nation's large insurers are financially strong and will not suffer insolvency over the losses. However, some smaller insurers who operate in one or two states may "see some precarious financial circumstances."
"The magnitude of an event like this is what [the major insurers] plan for," Mr. Hartwig noted. "For insurers, it wasn't a matter of 'if,' but 'when.'"
Many homeowners in the affected regions may not have insurance coverage because much of the damage is from flooding and not wind damage, and many in the affected area did not have flood insurance.
Mr. Hartwig said it appears that in the affected areas in Louisiana, between 30 percent and 60 percent of property owners purchased flood insurance. However, in Mississippi only 10 percent of homeowners have flood insurance. He did not have figures for Alabama.
Under the National Flood Insurance Program, as of Sept. 30, 2004, there were 376,681 policies in place in Louisiana, 41,946 in Mississippi, and 41,336 policies in Alabama–the three states that suffered a direct from Katrina.
He said Katrina would exceed Hurricane Andrew if losses rise above $21 billion.
The extent and type of damages will also bring business interruption coverage into play, Mr. Hartwig noted, saying he expected there to be "significant" losses in this area. He noted that many hotels suffered extensive damage when windows were blown out by Katrina and will not be reopened for months.
"This may be a little bit different from previous storms because, last year, two-thirds of the losses were homeowner related. I would expect a higher proportion of business-related losses this time around."
According to National Underwriter Insurance Data Services, St. Paul Travelers Companies writes the bulk of commercial property coverage in Louisiana with 13.5 percent. State Farm Mutual is second, writing 12.9 percent, followed by Zurich Insurance at 10.6 percent.
In Mississippi, Zurich Insurance Co. Group leads in the commercial property lines market with 14.6 percent, followed by St. Paul Travelers Companies at 12.8 percent, and State Farm Mutual Group at 9.3.
In Alabama, St. Paul Travelers writes 9.7 percent of the commercial property market, followed by State Farm Mutual at 7.6 percent, and Zurich Insurance at 7.4 percent.
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