It may be years before some parts of the Gulf Coast fully recover from last year's hurricanes and while the storms roughed up the insurance industry, it bounced back quickly and faces the 2006 hurricane season in sound shape.
When waters receded and winds died away, the hurricane season made 2005 the costliest ever for the insurance industry. But even after paying out a record $56 billion in claims, analysts say the industry took in more workers on line, thanks to strength in lines like liability and workers compensation.
“They were able to make enough money on the bulk of the rest of the business that overcame these losses from Hurricane Katrina,” says Paul Newsome of AG Edwards.
Industry profits rose 11 percent last year to $43 billion and surplus or reserves jumped 8.5 percent to $427 billion. Industry representatives say companies are set for another busy hurricane season.
“I think financially we're pretty well situated,” says Julie Rochman of the American Insurance Association
Insurers are better able to weather big storms these days and since Hurricane Andrew hits Florida's shores in 1992 they've been cutting their exposure to weather damage. They do this by narrowing what they cover, like selling homeowners insurance to cover fires, but not wind damage. To top it, some are leaving or no longer writing new coverage in high risk coastal areas.
Firms like Allstate insurance maintain that damage done by a big storm in these areas could wipe them out financially.
“They have a responsibility to remain solvent,” says Rochman.
Not all companies did in the wake of last year's storms. The insurance units of Florida's Poe Financial, which specializes in homeowners, commercial and small business insurance risks, went under and Mississippi Farm Bureau Mutual Insurance had to stop writing policies in its home state.
Analysts say these minor casualties in no way hurt the industry's ability to weather this year's storms.
“The insurance industry is set, I'm not sure the consumers or states are set to handle it, but the insurance industry at this point could pay those claims just as they did in 2005,” says Rochman.
But the industry's health comes at a cost to consumers and taxpayers.
Double and sometimes triple digit rate hikes are forecast as insurers like Nationwide pass on the higher cost of buying reinsurance, to homeowners in risky regions.
Meanwhile state insurance programs, like Florida's are filling in the gap as private insurers leave and taxpayers may end up bailing out the federal flood insurance program.
“After the last two hurricane seasons the national hurricane program is in a deficit like we've not seen before,” says David Maurstad of FEMA.
Learning from what it has seen before is paying off for the insurance industry these days — it won't take the risk, if the payout might swamp the payoff.
