By STEVE YAHN, who has been a reporter and editor for national publications.
Superstorm Sandy is on track to become the third most expensive hurricane in United States history behind only Hurricane Katrina and Hurricane Andrew, according to Loretta Worters, a vice president at the Insurance Information Institute.
Insured losses for Sandy are running at $25 billion in claims paid so far, compared with $48.7 billion for Katrina and $25.6 billion (in 2012 dollars) for Hurricane Andrew, which occurred in 1992.
In terms of claims by type for Sandy, Worters said, there have been 167,500 commercial claims so far (or 12 percent of the total); auto claims have totaled 230,500 (or 17 percent), and homeowner claims have totaled 982,000 (or 71 percent).
And yet, in spite of all the damage inflicted by Sandy, the insurance industry should emerge relatively unscathed by the blockbuster storm, according to industry experts.
"These losses are not likely to change market underwriting capacity to tip the balance to a hard market," said James B. Auden, Chicago-based managing director at Fitch Ratings.
"That's because prior to Hurricane Sandy, capital was very strong. There is still an abundance of capital. We think the industry surplus will grow a bit for the full year 2012, despite a fourth quarter loss."
In a January report, Fitch Ratings noted that initial reports on reinsurance pricing at the Jan. 1 renewals indicate that Sandy helped to stabilize rates, with U.S. property catastrophe pricing flat to up slightly overall, although loss impacted businesses experienced more significant rate increases.
Due to the size and nature of Sandy, a larger portion of actual dollar losses were incurred from commercial lines versus personal lines, the Fitch report noted. "Primary writers with substantial Northeast catastrophe exposures are incurring the most significant losses, with reinsurers taking a more reduced, although still meaningful share," the Fitch report said.
Standard & Poor's shared the Fitch assessment.
"Overall, we expect only a limited ratings impact on insurers and reinsurers exposed to Hurricane Sandy losses," S&P said. "We expect losses to reduce the (re)insurance industry's 2012 earnings, but not to impact industry capital."
At the micro level, the impact of Hurricane Sandy on business is often a different story.
Take the havoc wrought by the hurricane on the art galleries in the low-lying Chelsea area of New York. As a result of severe flooding and wind damage to the some 500 art galleries crammed into Chelsea, Mary Pontillo, vice president and manager of the fine art practice at DeWitt Stern Group in New York, said her market has turned hard on a dime.
"I've been in this industry for 10 years and this is the first time I've seen the fine arts insurance market become very hard," said Pontillo, whose firm is a leading insurance brokerage and risk management leader in the fine arts area. "We're seeing a slight increase on almost everything," she added.
And that's if Pontillo can even get certain kinds of catastrophe coverage, especially flood coverage. "We can't get any sort of flood coverage for anything in a basement or sub-grade level," said Pontillo, which was never mentioned before in a policy for fine arts."
Pontillo added that the quality of underwriting information required is already increasing. "Every single client is now having to confirm whether they have sub-grade or basement space. We actually changed our policy recently to reflect that."
For Worters and other kindred spirits, getting many commercial businesses to recognize the value of flood insurance has been a long and so far unsuccessful battle.
"Only 18 percent of Americans have flood insurance," Worters lamented.
"It's still amazing to us, that no matter what is done in getting the word out, the needle never seems to move on getting people to understand the importance of flood insurance," she added. "We've found that people will buy it for a year or two, and then they think, 'Hmm, nothing is really happening,' and they drop it. The same is often the case with earthquake coverage."
Looking out over 2013, Auden at Fitch Reports said, "We think in the last, say, 18 months, market pricing for property and casualty insurance has been improving, premiums have been going up pretty broadly across all product lines. And that should continue in 2013. Core underwriting should continue a little improvement. A more normal catastrophe year would lead to better profits in the market."
January 23, 2013
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