Katrina’s impact on the insurance industry will be greater than first anticipated. With insured losses now estimated to be in the $30 billion to $60 billion range, this hurricane is the most expensive event in insurance history.
Losses are from wind, flood, and fire, and will certainly include property, business interruption, fire, flood, environmental liability and impairment, crime, life, and health. The latest estimates from Risk Management Solutions are for losses of $15 – $25 billion for the New Orleans flood alone, with the rest of the costs for other losses due to other causes.
The impact of Katrina will be felt in all lines of insurance around the globe. Because a substantial portion of the losses will be borne by reinsurers, excess premium rates will increase to help cover costs while availability will decrease. In turn, primary insurers will have to raise rates to cover their losses and the increased reinsurance premiums.
Fortunately, Katrina came at a time when overall property and casualty insurance rates have been decreasing. According to MarketScout, property insurance rates dropped 7% over the last year, while workers’ comp rates decreased 7%, inland marine 5%, and umbrella/excess 11%. Overall, P&C rates were down 6% over the prior year.
Predictions in the industry are for rates to stay level if not increase slightly. The good news for insurance buyers is the industry is quite healthy with solid profits and substantial increases in reserves over the last two years.
While the insurance industry is much maligned, events like Katrina clearly demonstrate the industry’s value to society. By spreading risk across a very wide customer base, the industry will be able to cover losses while continuing to provide coverage for those who desire insurance.
What does this mean for you?
As devastating as Katrina has been and will continue to be, the insurance industry has weathered this most devastating of storms, and will come through in fine shape. That is good news.
Sep
11
