Insurers See Storm As Two Separate Events
Insurers See Storm as Two Separate Events
http://aolsvc.news.aol.com/business/...09162909990015
(Gold9472: Why do we even pay insurance? If they don't pay, then who will? The American people? We are the most generous country in the world, and I guarantee we have given, and are continuing to give our fair share for the victims of Katrina, HOWEVER, the hurricane caused the levees to break. They are both part of the same event. Now, I'm sure that you could say that the levees broke because of neglect on the part of the Federal Government, but that's a can o' worms I'm sure no one wants to open. Imagine the lawsuits that may come from this.)
By JOE BEL BRUNO, AP
NEW YORK (Sept. 9) - Insurers are potentially facing billions of dollars in losses from Hurricane Katrina claims, and battle lines have begun forming as carriers argue they aren't responsible for flooding excluded from standard homeowners policies.
The majority of homes in areas slammed by the hurricane have policies that cover wind and rain damage, but relatively few had extra insurance to cover flooding. Insurers are posturing to limit the amount of damages by saying massive flooding in storm-ravaged New Orleans is a separate event from the hurricane itself.
This distinction could save insurers billions of dollars more from a catastrophe billed as the costliest natural disaster ever to face the industry. Some carriers have even adopted the phrase "The Great New Orleans Flood" in an effort to make that distinction more tangible.
"If there is a question at some point as to whether the industry should be held responsible for flood insurance, that would change the whole mechanism of how insurance works," said Loretta Worters, a vice president with the Insurance Information Institute, a trade organization sponsored by the property & casualty industry.
"I understand their plight, and insurers have their adjustors out and see what's going on, but we are compassionate up to the point of the policy," she said, "but, that's where FEMA has to step in."
Risk Management Solutions, a California-based consulting firm that models the financial impact of storms, said Friday that Katrina and its aftermath would cause at least $125 billion in economic losses, and a large chunk of that is expected to come from flooding in New Orleans. However, RMS said the disaster may cost insurers $40 billion to $60 billion in claims, up from an earlier estimate of $20 billion to $35 billion.
RMS said that $15 billion to $25 billion of its new forecast is insured losses due to flooding. Only about 40 percent of homeowners in Louisiana have insurance protecting property from floods - most of them because mortgage lenders require such policies for the term of their loans.
However, the amount of claims could skyrocket if insurers are forced to treat uninsured flood damage as an offshoot to standard homeowners insurance. That's one reason property and casualty insurers are telling Wall Street damages will be limited, so long as they are restricted to just wind-related claims.
"Although we believe the economic loss from the Great New Orleans Flood will exceed economic losses from Hurricane Katrina, our preliminary analysis suggests that the flood losses are substantially uninsured," said Bermuda-based Aspen Insurance Holdings Ltd. in a statement released on Thursday. "We expect that Aspen's share of the industry's insured flood losses will be modest compared to Hurricane Katrina."
The federal government began offering flood insurance in 1968 to help relieve some of the financial burden faced by the nation's insurers. Flood insurance offered by the government - but sold through individual insurers - covers up to $250,000 for a home and $100,000 for personal property.
"This is an event of unprecedented complexity, and there are very few ways to look for comparable events in history that has created such enormous losses," said Brian Owens, a London-based member of Risk Management Solutions' catastrophe response team. "We modeled this separately, but we can't say if it was two events. That will come down to discussions between insurers and policyholders, and there will be interesting times ahead."
Assuming estimates are correct, Hurricane Katrina would cause insurance losses greater than the $20.1 billion linked to the Sept. 11 terrorist attacks and the $20.5 billion associated with Hurricane Andrew. Like in past disasters, the insurance industry is expected to write-off a large amount of losses through reinsurance contracts.
The battle brewing over how insurance companies might treat the catastrophe is already reminiscent to how the industry handled Sept. 11. Larry Silverstein, who owned the lease on the World Trade Center, tried to collect on his insurance policy - but insurers argued the two attacks were a single event to limit the payout.
Silverstein eventually won the dispute after a jury decided the plane crashes were separate events. A similar lawsuit would be the only way to compel insurance companies to pay out on all the Katrina-related damages, and it would take state insurance commissions to enact further changes.
State insurance commissioners are warning carriers that they must prove that damage was caused by water and not by wind if they deny a claim. Mississippi Insurance Commissioner George Dale said in a bulletin released Wednesday that insurance companies must act to ensure consumers are treated fairly and receive compensation promptly.
"I expect and believe that where there is any doubt, that doubt will be resolved in favor of finding coverage on behalf of the insured," Dale said in the statement.
