Katrina may cost record $25 billion

Teams of adjusters are set to inspect damaged areas

A Nightmare For Insurers

Hurricane Katrina

August 31, 2005|By Diane Levick | Diane Levick,THE HARTFORD COURANT

A day after Hurricane Katrina smashed the Gulf Coast, insurers were still unable to tally the property damage, but they expect to pay billions in claims just from delays that keep customers from returning to homes and businesses.

Estimates on the industry's total cost of the storm ranged from $9 billion to $25 billion yesterday, based on computer modeling firms' assessments of Katrina's path, wind speed and amount of insured property.

Only one of the firms - AIR Worldwide in Boston - revised its estimates from Monday. Yesterday, AIR forecast $17 billion to $25 billion in claims. On Monday, it forecast $12 billion to $26 billion.

Katrina has a 50-50 chance of topping 1992's Hurricane Andrew - which cost more than $21 billion in today's dollars - and ranking as the most expensive hurricane ever for insurers, said Robert Hartwig, chief economist for the Insurance Information Institute.

"What's happening is the light of a new day indicates damage is more extensive, in terms of intensity as well as geographic spread, than initially expected," he said.

Katrina made landfall Monday with 145 mph winds on the eastern edge of Louisiana, devastating Mississippi and Alabama as well. Yesterday, water from Lake Pontchartrain poured through a damaged levee into New Orleans, and authorities said 80 percent of the city was under water.

Insurance companies don't pay for flood damage, except for some special policies. Homeowners - especially those without flood insurance - could face battles with insurers over whether damage was caused by flooding or Katrina's wind and rain, or a combination of those.

Homeowners' policies generally don't cover surface flooding, but do cover damage from wind-driven rain.

`A challenge'

Ray Stone, vice president of catastrophe operations at the St. Paul Travelers Cos., acknowledged that it "can be a challenge at times" to figure out causes of damage, but he said adjusters are trained to do so.

Homeowners' policies may pay for living expenses, up to certain amounts, if a house has suffered a major loss and is uninhabitable.

"Business interruption" coverage - meant to help replace lost income - could be triggered under a commercial policy.

Business interruption claims often lead to disputes and take a long time to resolve - often because of policy language on what triggers the coverage and requirements for documentation of a loss.

Business claims from Katrina could be sizable because unlike Florida, Louisiana is home to oil, gas and chemical facilities, Standard & Poor's said in a report yesterday.

Also, Katrina could result in serious claims from casino businesses along the Mississippi coast, S&P said.

Like other insurers, St. Paul Travelers was moving its adjusters closer to the hardest-hit coastal areas yesterday but was unable to enter them. Civil authorities are keeping people from even trying.

It's frustrating for adjusters, Stone said. "They're anxious. They've got claims." He said they're trying their best to contact people who have reported claims, but land-based telephone lines are down and cell phone service has been spotty.

Moving advance team

Travelers was trying yesterday to move its advance team of adjusters - about 40 people - from Houston to Baton Rouge, La., and has 500 more on standby around the nation.

St. Paul Travelers and the Hartford Financial Services Group would not publicly estimate their respective claim costs.

Hartford, though, said it has received slightly more than 1,000 claims from Katrina's damage in Florida and expects that the total number from that state will be 1,500 to 1,600.

The company said it has begun getting claims from Katrina's second landfall, in Louisiana, but would not say how many.

Some analysts yesterday published rough estimates of claim costs, based on insurers' market shares in the affected states.

UBS analyst Andrew Kligerman said Hartford could face $150 million to $375 million pretax claims, but he said that reinsurance - insurers' method of spreading their risk - would likely reduce the amounts he estimated.

His figures were based on Risk Management Solutions' estimate of $10 billion to $25 billion for the industry.

Keefe, Bruyette & Woods analyst Cliff Gallant estimated $209 million in homeowners' claims and $439 million in commercial claims for St. Paul Travelers. Reinsurers could shoulder another $6 billion, he said.

Gallant estimated $54 million in homeowners' claims for Hartford and $61 million in commercial claims. State Farm, he predicts, would be the biggest loser on homeowners, with more than $2.2 billion in claims.

The Hartford Courant is a Tribune Publishing newspaper.

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