March 23, 2006
Big Rise Seen in Storm Losses for Next 5 Years
By Ed Leefeldt
NEW YORK -- Insured property losses from hurricanes in Florida and the Gulf Coast are likely to be 40 percent higher for at least the next five years, a leading consultant said on Thursday in one of the most forward-looking studies in the industry.
Losses for the Mid-Atlantic and Northeastern United States will be 25 percent to 30 percent higher, according to Risk Management Solutions, a Newark, California-based group that predicts the severity of storms and their losses.
RMS said its new view is based on elevated levels of hurricane activity on the Atlantic basin, driven by higher sea surface temperatures since 1995.
Losses in the 2005 hurricane season were the worst ever, with Hurricane Katrina in August costing more than $60 billion in damages and over 1,300 lives.
The hurricane season runs from the beginning of June to the end of November.
The RMS study is the first to "look forward rather than back at previous losses," said Andrew Logan, head of insurance programs at Ceres, a coalition of pension funds and environmental organizations.
"They recognize that the future won't look like the past and the hurricane models have to reflect that," said Logan.
Likely to be hardest hit is Florida, which was struck by four hurricanes in 2004, suffered a glancing blow from Katrina, and then took the full force of Hurricane Wilma in October.
But modelers such as RMS have also predicted a major storm could strike up the East Coast as far as Long Island or New England, prompting home insurers such as Allstate Corp. to cut back on policies there.
"We know this study will have insurance implications," said Robert Muir-Wood, chief researcher at RMS. "Rating agencies look at this and other studies in deciding how much reserves insurers should keep. The pricing of reinsurance (insurance for insurers) is likely to go up, and those costs will be passed along to the consumer."
Muir-Wood said debate over the cause of the higher water temperatures "has tilted quite a lot toward global warming" as the reason, with numerous scientific papers citing it.