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HURRICANE KATRINA; Storm May Have Caused $100 Billion in Losses; Insurers Assess Damage in Gulf Area

Posted on: Friday, 9 September 2005, 15:00 CDT

Thousands of insurance adjusters have amassed in the toxic Gulf Coast territory left by Hurricane Katrina, where a national spokesman said Thursday that $100 billion in losses "might not be far-fetched."

That sum is based on computerized risk models, not a visual assessment of wind- and flood-ravaged Louisiana, Mississippi and Alabama, noted Joseph Annotti, senior vice president of public relations for the Property Casualty Insurers Association of America.

Association members provide 41% of the nation's homeowner, auto, commercial and private workers' compensation insurance.

"Our claims adjusters haven't been allowed into many areas," Annotti said, "but $25 billion is probably a realistic number for insured property losses."

The other potential $75 billion in damages would involve losses beyond his group's scope damaged infrastructure, disrupted transportation and oil refining activities, and uninsured losses, he said.

Annotti's comments came in an interview following his group's media conference call about the Aug. 29 hurricane.

While the death count will be terrible and financial losses huge, Annotti said, "this is certainly not a solvency-threatening event" for insurers.

It may be two or three months before authorities allow outsiders into the heart of New Orleans, now flooded with polluted water from failed levees, corpses and debris, said John Eager, the association's senior claims director.

"Normally, we fly right into a damaged area," Eager said. "But this storm is being worked backwards. There are thousands of adjusters out there (but) they're just going into areas that are stable."

Meanwhile, insurers are issuing emergency cash advances to policy holders, industry representatives said.

With most of their customers homeless, "a lot of people are calling us. They have no means and they're out of money," said Bob Warner, claims manager for Louisiana Farm Bureau Mutual Insurance in Baton Rouge.

His company is mailing checks to relocation spots around the country, he said.

Two financial questions loom: what losses insurers will and won't cover, and what effects might ripple nationally in the insurance industry and for its consumers.

Most insurance policies cover water and wind damage, but not flood damage which requires separate coverage through the federal government.

Insurers know the difference, Warner said.

"When you have a flood loss, there's a water line in the house an obvious line where the water rose. If there's rain from above, you're not going to have the whole house wet," he said.

Participants in Thursday's Katrina discussion didn't mention it, but people outside the afflicted area will share the losses through policy premium increases.

"We'd project those living on the coasts and in hurricane-prone areas will see some increases," said Eric Englund, president of Wisconsin Insurance Alliance.

"But those of us living in the Midwest won't see a substantial change."

American Family Insurance, which has about one-fourth of the Wisconsin market, doesn't sell policies in Louisiana, Mississippi, Alabama or Florida, "so there will be no impact on our rate levels," said media relations director Ken Muth.

American Family does face two Katrina-related costs: about 50 claims from customers traveling in the Gulf Coast when the hurricane hit or whose college-age children had belongings there, and higher reinsurance rates its own cost of being insured as reinsurers seek to replenish financial reserves after Katrina payouts, Muth said.

Copyright 2005, Journal Sentinel Inc. All rights reserved. (Note: This notice does not apply to those news items already copyrighted and received through wire services or other media.)

Source: Milwaukee Journal Sentinel

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