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Goodnight Irene

The article comments on the cost to the insurance industry from one of the worst years on record for weather-related disasters. It's going to cost the industry billions and force up the premium rates.

Author: Grace Oaks

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Lead Belly probably never imagined his lyrics would have been greeted by headline writers with such enthusiasm from the title to the line about jumping into the river to drown - there have been a number of people drowned in their cars, suddenly caught in water deeper than expected. So goodnight Hurricane Irene as it slowly makes its way up the coast as no more than a tropical storm. You have left us with a massive cleanup operation and a major bill for the insurance industry to pay. Initial estimates are in the region of $7 billion thanks to the damage to property in the wealthy parts of town in New York and Philadelphia.

But the Atlantic Coast has some of the most expensive property in America and, when the claims adjusters start to sift through the claims, the bill could be a lot higher as returning residents find expensive contents lost or damaged. Fortunately, there does not seem to have been much looting. For once, the Brits beat us a couple of weeks ago as their youth went on a criminal shopping spree in some cities. Perhaps it was the early placement of police and the National Guard that's kept us safer this time round.

If the estimates of $7 billion prove correct, this would make it one of the most expensive storms in history. Katrina was by far and away the worst, costing private insurers $45 billion, i.e. that's not counting the flood insurance paid out by the federal program. Excluding the 7/11 attack on the World Trade Center, all the most expensive disasters have been hurricanes. If the scientists are right and global warming is going to make these storms and hurricanes more common, we have an expensive future ahead of us as the premium rates rise to match the claims being made.

Let's be clear about the trend. This weekend may have been a spectacular moment, but it hides the sad reality that 2011 has already been one of the worst years on record for weather-related claims. This is draining the cash reserves of all the insurers and threatening their capital base.

A M Best monitors the financial health of the insurance industry and it's already issuing warnings. In part, this is because of the increasingly globalized nature of the insurance industry. Many of our insurers have been faced with major losses because of the Japanese earthquake and tsunami earlier this year. So when you put it altogether, we've had a bad year with major snow and ice storms, followed by fires in the Southwest, tornadoes, and flooding along the Mississippi.

Although business insurers have been feeling the strain, it's the home insurance market driving the high claims numbers this year. We've been unlucky. Bad weather events have been hitting more densely populated areas. As the claims adjusters agree the final payouts, the extent of the losses will become clearer. In turn this will trigger rate rises. If A M Best is correct and the capital base of the industry is threatened, more money will be required to cover next year's claims. With the stock exchanges showing signs of weakening, only the home insurance rates can pull in the money in sufficient amounts. It's going to be an expensive year!

About Author

Grace Oaks is always ready to share his professional point of view on a topic. To see what Grace Oaks has written about other things visit http://www.insurers-guide.com/articles/home-insurance-and-irene.html.

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