Insurance losses from storms in Florida and the Gulf Coast this year will be 40 percent higher than average and the Mid-Atlantic and Northeast will be 25 percent to 30 percent higher, a risk group is predicting in a new report.
Risk Management Solutions, a Newark, California-based group that predicts the severity of storms and their losses, said its predictions are based on elevated levels of hurricane activity in the Atlantic basin driven by higher sea surface temperatures since 1995.
Average losses from hurricanes have been only about $3.5 billion over the last 20 years, but then soared to $23 billion in 2004 and a record $56 billion in 2005, according to industry statistics.
In August 2005 Hurricane Katrina alone cost more than $36 billion in insured damages and over 1,300 lives.
The North American 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 against losses. The pricing of reinsurance (insurance for insurers) is likely to go up, and those costs will be passed along to the consumer.”
There was little disagreement with the RMS study among insurers.
“The question is not if, but when this will happen,” said Michael Costonis, a managing partner with Accenture Ltd.’s insurance claims practice.
“There’s overwhelming evidence that the 2006 hurricane season will be longer, and storms will be more frequent and intense. We could see 20 years of this,” said Robert Hartwig, chief economist for the Insurance Information Institute.
Hartwig said insurers would use the RMS study and other research for future filings. Homeowners’ rates probably wouldn’t go up much this year because rates have already been set, but they would in future years, he said.
