Katrina Leads Pack Of Record Hurricanes
Worst disaster ever combines with Rita, Wilma to cause $45.2 billion in losses
BY SAM FRIEDMAN
Insurers thought they got walloped last year when a grand slam of hurricanes hit the U.S. mainland in 90 days, causing just over $20 billion in covered damages. However, had a fortune teller sensed what lay ahead for 2005, the seer would have warned: “You ain’t seen nothin’ yet!”
From late summer until early fall, three new top-10 storms hammered the Southeastern United States this year, including the worst ever—Hurricane Katrina—combining with Hurricanes Rita and Wilma to drain some $45.2 billion from insurer coffers. Total catastrophe losses for the year have already topped an astounding $50 billion.
Katrina is by far the most devastating catastrophe ever to hit the industry, with insured losses at $34.4 billion and counting—surpassing another monster, 1992’s Hurricane Andrew, by some $14 billion. Katrina wreaked havoc along the Gulf Coast, very nearly destroying the city of New Orleans—a popular convention destination for the industry.
Hurricane Wilma ended up being the seventh-worst U.S. catastrophe with $6.1 billion in claims, while Rita finished ninth at $4.7 billion.
The hurricanes stand on their own as the story of the year, not only because of the massive devastation they caused, but also because they drove two other stories of top-10 consequence.
For one, widespread water damage caused by Katrina prompted legal challenges to the industry’s longstanding flood exclusion. It also put a spotlight on the National Flood Insurance Program’s many shortcomings (see page 21).
In addition, record catastrophe losses had an impact on the softening market—one of the other top-10 stories this year—although it appears insurers will not seek across-the-board price hikes to compensate, remaining “rational” in their response. Thus far, only selected regions, lines and individual accounts are seeing substantial increases (see page 24).
In addition, the combination of major natural disasters and the looming expiration of the Terrorism Risk Insurance Act prompted calls by some big-state regulators for an entirely new approach to coverage of mega-catastrophes.
California Insurance Commissioner John Garamendi led the charge for a comprehensive plan that would eventually replace the NFIP and establish an all-perils homeowner policy backed by a public-private partnership. The industry’s response has been skeptical at best, as insurers suspect they will be left with a majority of the exposure while still being hamstrung by politically-driven rate restraints.
Back-to-back years of record hurricane losses also prompted rating agencies to reconsider how they assess a carrier’s ability to withstand a major disaster or series of catastrophes, which will reverberate throughout the industry as insurers scramble to meet new risk-based capital standards.
Can insurers—not to mention the public and the government—withstand a third consecutive season of horrific hurricanes? Let’s hope we don’t have to find out.
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