Bonnie should not affect rates for home insurance, expert says

August 29, 1998|By Ernest F. Imhoff | Ernest F. Imhoff,SUN STAFF

Home insurance rates will probably be unaffected by damage reported from Hurricane Bonnie, a well-known insurance consumer advocate says.

"I'm thinking, based on what I've heard, the storm will not raise rates in the country, and probably not in North Carolina," said Bob Hunter, insurance director of the Consumer Federation of America. "The damage is apparently not that great."

Virtually agreeing with the assessment was Steven Goldstein, vice president of the Insurance Information Institute of New York, the industry's communication arm.

"Any changes in rates would likely be very minimal, if any," Goldstein said. "And no impact on states outside North Carolina" is expected unless they are damaged.

"And," he added, "if Bob Hunter thinks they won't go up, they won't."

Bonnie caused two days of damage in North Carolina estimated at more than $1 billion, nowhere near Hurricane Andrew's insured losses of $15.5 billion in 1992.

The damage caused by Bonnie was largely flood damage, both observers said. This is not covered by home insurance but underwritten by the federal government, so the losses paid out would have no impact on the private insurance market, Goldstein said.

Hunter said that catastrophic loses are excluded from the insurance industry's regular rate-making, but are inserted into its rate system by modeling.

For Hurricane Andrew in 1992, both Hunter and Goldstein said the industry model greatly underestimated the amount of damage from a major storm making landfall. After Andrew, home insurance rates went up.

The model for damage for a Category 3 hurricane, like Bonnie before it weakened to become a tropical storm may have projected much more damage than actually occurred, Hunter said.

"There's an outside chance rates in North Carolina might even fall," Hunter said.

He said the industry's model for this season predicted 19 hurricanes, three or four of them making landfall.

Hunter was the federal insurance administrator during the Ford and Carter administrations, from the mid-1970s to 1980. The agency he worked for preceded the current Federal Emergency Management Agency. He has been in the insurance consumer movement for two decades, except for a term as Texas insurance commissioner.

Pub Date: 8/29/98

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