Storm claims likely to top $25 million

But cost of the damage is expected to be far more

June 30, 2006|By MEREDITH COHN | MEREDITH COHN,SUN REPORTER

Insurance claims stemming from this week's heavy rain likely will top $25 million in the Baltimore-Washington region, enough to be considered a catastrophic event for the insurance industry, experts say.

But it will be far below the $40.6 billion cost of Hurricane Katrina last year or the $1.7 billion cost of Tropical Storm Isabel that socked metropolitan Baltimore in 2003.

The actual price tag, however, is likely to be a lot higher than $25 million since much of the water damage from days of rain is uncovered by standard insurance policies, insurers said. That would require national flood insurance, and only 3 percent of Maryland households have it.

Total insured and uninsured costs won't be known for some time because claims for homes, cars and businesses are still coming into insurance companies and adjusters are just getting started.

As a prelude to requesting federal assistance, state officials are compiling a full account of the damage to structures, roads and crops, which most certainly won't be covered by insurance.

Many property owners are likely to be disappointed to learn that there will not be any or enough insurance or government money to pay for flood-related damage.

"If your basement is filled with water, that's the classic definition of a flood," said Robert P. Hartwig, chief economist at the Insurance Information Institute, an industry group. "In those cases, there wouldn't be coverage."

He said most standard policies would cover wind damage, such as a tree that fell through the living room window or a lightning strike.

Damage from rain entering through a storm-damaged roof has a better chance of being covered than damage from rain entering through a poorly maintained roof.

Mold and fungus often are specifically excluded by standard policies.

On the other hand, flooded cars often are covered, Hartwig said.

Owners of businesses can more easily buy private flood insurance. They also can buy a policy to cover interruption to their work due to weather.

Storms of this week's magnitude happen about 75 to 100 times a year around the country, Hartwig said, bringing in 10,000 claims or more. It usually takes a month or more to get an estimate of costs.

Nationwide Insurance Co. reports that this week's rain has so far generated 750 claims in Maryland and 750 in Virginia. State Farm Insurance reports receiving 1,500 claims in Maryland, 400 in Washington and 1,030 in Virginia. Isabel generated 16,000 claims in the region for State Farm, one of the area's largest insurers.

"This is certainly more claims than we normally see from rain," said Matthew Greer, a company spokesman. "This has been the most significant rain since Isabel."

The Maryland Emergency Management Agency is touring the state to assess what damage won't be covered, said Ed McDonough, a spokesman. Depending on the level, the state could apply for aid from the Federal Emergency Management Agency for road and building damage and the U.S. Department of Agriculture for crop loss.

"We're trying to be cautious because we don't want to raise people's expectation that we'll get money," he said. "And it doesn't mean everything will be covered even if we do get money. ... FEMA's job is not to necessarily make people whole, it's to assist with recovery."

Many victims of flooding from Tropical Storm Isabel learned that standard insurance, flood insurance and federal assistance together don't necessarily pay to replace a home. Many fought for months or longer for payments they believed they were due, and had to call on their elected leaders for help in negotiating with insurers.

Officials at the Maryland Insurance Administration, which oversees firms that sell insurance policies in the state, say they are prepared for calls from homeowners who have been denied coverage from this week's storms.

Insurance Commissioner R. Steven Orr said officials at the agency would mediate individual cases where coverage is in question. They also will keep watch for companies unfairly denying claims.

But, he said, homeowners need to take some responsibility for learning what's in their policies and for preparing their homes. Hurricane season just got under way.

He issued an advisory in June recommending homeowners, business owners and renters consider buying a policy through the National Flood Insurance Program.

Counties most prone to flooding include Baltimore, Anne Arundel, Dorchester and Queen Anne's and Baltimore City, the advisory said.

Policies take 30 days to go into effect and cover up to $250,000 for homes and up to $500,000 for businesses. An additional $100,00 in coverage is available for contents.

The average policy cost is $450 a year.

"If there is any good that can come from this latest situation, it's that people are becoming alert to the issue of preparing for serious storm problems," Orr said yesterday. "We see what can happen."

meredith.cohn@baltsun.com

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