Hurricanes worrying insurers Climate: A new cycle of severe hurricanes may be starting -- spurredm perhaps, by increased North African rainfall and other meteorological forces mysteriously linked to hurricane rates.

September 22, 1996|By SAN FRANCISCO EXAMINER

SAN FRANCISCO - The East Coast insurers fear waves of severe hurricanes that could cost tens of billions of dollars and cripple the insurance industry.

Numerous hurricanes assailed the East and Southeast coasts in the 1940s and 1950s, then grew scarce in the 1970s and 1980s. A total of 23 hurricanes reached land in the 1940s, compared with 12 in the 1970s.

Now, a new cycle of severe hurricanes may be starting - spurred, perhaps, by increased north African rainfall and other meteorological forces mysteriously linked to hurricane rates. And history is any guide, the cycle could last for years.

Bigger human target

Worse, the hurricanes have a bigger human target: the millions who migrated to the Sun Belt during the hurricane lull of the 1970s and 1980s. Urban density and property values have soared.

Hurricanes that inflict damage in the billion-dollar range were unimaginable a decade ago. Today, such financial tolls are routine. For example, Hurricane Fran, which hit North Carolina Sept. 5, caused $1.6 billion in damage there and in several other states.

"The upshot of large coastal development during the last 25 [to] 30 years will very likely include hurricane destruction as never before experienced," says meteorologist William Gray of Colorado State University. Last year, he made headlines by successfully forecasting a record wave of hurricane activity in 1995. That year brought 19 tropical storms, including 11 tropical storms, the most in one year since the 1930s.

Many insurers "fear that another storm of the magnitude of Hurricane Andrew [which hit Florida in 1992] or a massive earthquake would destroy them," says Ruth Gastel of the Insurance Information Institute, a trade association that represents 200 property and casualty insurance companies.

A "megacatastrophe - one costing the industry $50 billion to $100 billion or more - could result in the insolvency of up to 36 percent of all insurers, depending on where the event occurs," she says. In that event, up to $56 billion worth of claims would go unpaid.

Hurricanes aren't the insurers' only headache. In recent years the world insurance industry has been repeatedly clobbered by high costs from natural disasters - for example, $5.9 billion for the San Francisco area's Loma Prieta quake in 1989 and $16 billion for the 1994 Southern California quake.

Future more ominous

The future is more ominous: Insurers fear hyper-catastrophes such as a $50 plus billion-plus hurricane in Miami or New England, a $58 billion quake in Los Angeles, and an $80 billion-plus earthquake in San Francisco.

Some insurance firms have resisted issuing new policies to homeowners in dangerous areas; others demand tougher building codes. Many back a congressional bill to create a disaster fund to protect insurers when the winds start howling and the Earth starts shaking.

Companies also are turning to science. Researchers debate whether human activities are causing global warming, but the insurance industry isn't waiting to find out.

Some insurers fear the phenomenon, caused by the burning of fossil fuels, will worsen hurricanes by fueling them with warm, moist ocean air.

In a classic case of "strange bedfellows," gray-suited insurers are seeking advice on global warming from the in-your-face environmental group Greenpeace.

"We have to be viewed as the odd couple," acknowledged Franklin Nutter, president in the Reinsurance Association of America and a leader of the insurance industry's anti-greenhouse movement.

In Washington, Greenpeace spokesperson Debra Rephan said the group was "very excited" about the insurers' new concern. European insurance firms such as Munich Re and Swiss Re have long been interested in global warming. But until recently, she said, "it's been very, very difficult to get the U.S. insurers to pay attention."

New age dawned in 1989

So far this year, the Atlantic has brewed eight tropical storms, six of which became hurricanes - storms with winds higher than 74 mph. Three were "major" hurricanes: Edouard, Fran and Bertha, said hurricane forecaster Chris Landsea of the National Oceanic and Atmospheric Administration.

The new age of super-costly hurricanes dawned in 1989. Before then, no hurricane had caused more than $1 billion in damage, Gastel says.

Then, Hurricane Hugo clobbered the East Coast, running up a then-incredible bill of $4.2 billion. Then came 1992 and Andrew, the hurricane that many dubbed the East Coast's "wake-up call." It cost insurance companies almost $16 billion. Nine companies declared insolvency.

"Hurricane Andrew was more like a 35-mile-wide tornado rather than a typical hurricane," Gastel says.

If it had traveled 20 miles further north, into downtown Miami, it could have caused more than three times as much damage, she says. "If it had struck the New England coastline, the price tag could have topped $110 billion."

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