Insurers’ Bill for Irene Falls

Weaker-than-expected storm now expected to cost carriers $2.6 bln.

Hurricane Irene’s estimated cost to insurers fell to about $2.6 billion in the U.S. as the storm lost strength en route to New York, according to Kinetic Analysis Corp., a firm that predicts the effects of disasters.

That compares with a projection last week from the Silver Spring, Maryland-based company of as much as $14 billion. Total economic losses, including those that aren’t insured, may be about $7 billion.

“Insurers may get off pretty easy,” Charles Watson, Kinetic’s research and development director, said in a phone interview from Savannah, Georgia. “This one’s not the straw that broke the camel’s back.”

Estimates of losses declined as Irene weakened from a hurricane to a tropical storm. Insurers may face losses of $200 million to $400 million in North Carolina and South Carolina, according to risk-modeling firm Eqecat. That’s less than the $1.4 billion in insured losses North Carolina sustained from Hurricane Floyd in 1999, one of the costliest storms to hit that state, according to the Insurance Information Institute.

“The first initial estimates were that the storm was going to be a lot more severe,” Tom Larsen, senior vice president at Oakland, California-based Eqecat, said in a phone interview. “Sometimes they look big and they’re not, and sometimes they blow up really quickly and become a major loss.”


Volatility in Projections
Eqecat and other modeling firms hadn’t release estimates for mid-Atlantic states, New York and New England as of 6 p.m. local time yesterday. Losses in those regions could create volatility in the projections, Larsen said.

Irene struck New York City yesterday at around 9 a.m. local time with winds of 65 miles (105 kilometers) per hour, before pushing into New England. The storm sent rivers to almost-record heights and knocked out power to more than 4 million customers in 12 states and the District of Columbia. At least 18 people died from Puerto Rico to Connecticut.

Much of the insured flood damage to homes along the coast will be shouldered by a government-run program, said Kinetic’s Watson. Standard homeowners’ policies sold by private carriers don’t include that protection. The government also will face costs tied to clearing debris and fallen trees.

“Cleanup is going to be about half of the real cost of the storm, and that’s a government expense,” Watson said.


Forced to Evacuate
Insured losses may include hotel and living expenses for policyholders who were forced to evacuate, according to AIR Worldwide, a Boston-based risk modeler. More than 2 million people were ordered to leave low-lying areas before the storm. The majority of them were in New York and New Jersey, where hotel rates and living expenses are among the highest in the U.S., AIR said.

Business-interruption claims also can add to insurers’ costs. More than 10,000 flights were canceled as officials shuttered airports in the New York metropolitan area, the busiest U.S. travel market. The National Association of Insurance Commissioners called off its Summer National Meeting in Philadelphia, scheduled to begin today, after members scrapped travel plans.

State Farm Mutual Automobile Insurance Co., the largest U.S. house and car insurer, said more than 3,000 homeowners’ claims and about 670 auto claims had been filed in North Carolina, Virginia, Pennsylvania, New Jersey, New York and Connecticut as of 3 p.m. yesterday. Data from Delaware and Maryland wasn’t immediately available.


Power Failures
The insurer was receiving reports of downed trees, siding and roofing materials blown off houses, power failures and “a lot of claims for loss of refrigerated food,” said Jon Hannah, a spokesman for Bloomington, Illinois-based State Farm.

Allstate, the second-largest U.S. home and auto insurer, said that claims adjusters near Greenville, North Carolina saw snapped trees, according to April Eaton, a spokeswoman. Chubb Corp. has started receiving calls from policyholders, Chubb’s Mark Schussel said yesterday.

Damage in the U.S. from Irene will add to losses already sustained in the Caribbean. The storm whipped through the Bahamas before heading to North Carolina. AIR estimated insured losses of $500 million to $1.1 billion in the Caribbean, while Eqecat said losses may be $300 million to $600 million.

Insurers have faced costs tied to other catastrophes this year, including an earthquake in Japan, tropical cyclone in Australia and tornadoes in the U.S. Natural disasters caused more than $2 billion in claims at Allstate and erased second- quarter profit. Travelers Cos. was also unprofitable in the period. Disasters outside the U.S. led to a first-quarter underwriting loss at Warren Buffett’s Berkshire Hathaway Inc.

“The industry as a whole is having a catastrophe-prone year,” said Eqecat’s Larsen. “This is just one more to pile on top.”

Bloomberg News

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