A Storm Too Fierce for Some Insurance Companies

At least 58 people fell victim to Hurricane Ian in the U.S. The terrible storm could also become one of the most expensive cases in the history of the insurance industry.

It is yet another terrible occurrence. At least 58 people died in Florida alone as a result of Hurricane Ian, which left a trail of devastation and caused storm surges and torrential rain. Most of the victims apparently drowned. An older couple died at home because their ventilator stopped functioning due to the power outage. At least 750,000 homes were or still are without power in the U.S. In Cuba, whose western tip was affected by the storm on Wednesday, the power supply went out temporarily for all 11.3 million inhabitants.

For insurers and reinsurers, Ian means they must deal with some of the heaviest storm damage in the history of the U.S. It is comparable to the disaster of Katrina, which caused $65 billion worth of damage at the time, a large part of which was due to the flooding of New Orleans. In today’s money that would be $89 billion.

Ian could be similarly expensive, according to specialist companies that appraise the possible outcomes of catastrophes and the actual damage on behalf of insurers. The range of estimates from these catastrophe modelers is wide and stretches from $12 billion to $80 billion, the latter number quoted by renowned analytics company, RMS.

The Most Recent Estimate: Far More Than $100 Billion in Damage

The most recent estimate comes from Karen Clark & Company and starts at $63 billion, but it doesn’t factor in damage to boats and ships or the national flood insurance program. “Total economic damage will be well over $100 billion, including uninsured properties, damage to infrastructure, and other cleanup and recovery costs,” KCC reported.

On the one hand, the fact that hurricanes cause such severe damage is related to their increasing strength, which, according to many experts, is a result of climate change. On the other hand, increasing development of expensive residential buildings and hotels on land that is severely vulnerable to storms plays a big role.

It’s already clear that there will be a lot of dispute about whether damage was caused by the storm or flooding. Many properties are insured against storm damage but not against water damage. American homeowners usually either insure their buildings through the national flood program or not at all: Only 10% have a policy against flooding. Even today, there are numerous court cases surrounding damage caused by Hurricane Irma, which raged through the U.S. in 2017.

Some Insurers Will Have To File for Bankruptcy

In any case, Hurricane Ian, which affected first Florida, then South Carolina, will cost insurers and reinsurers worldwide a great deal and have grave consequences for insurers active in Florida. The reinsurer Munich Re still doesn’t see itself in a position to make a serious estimate, but the analytics company CoreLogic expects many insolvencies in the industry. “A record number of homes and properties were lost due to Hurricane Ian’s intense and destructive characteristics,” says CoreLogic analyst Tom Larsen. His prognosis: The storm will change the real estate industry and urban infrastructure forever. “Insurers will go into bankruptcy, homeowners will be forced into delinquency and insurance will become less accessible in regions like Florida.”

The hurricane is affecting insurers in Florida which were already in a difficult situation. Major American insurers like State Farm and Allstate greatly reduced their offers to building owners there after high damage in previous years. Some smaller companies had to declare bankruptcy, others sharply increased premiums and limited their coverage. Ian will further intensify this situation. Even reinsurers are withdrawing, which, for their part, offer insurers protection against catastrophes.

A large part of the private market for insurance of residential buildings is dominated by providers who are active exclusively in Florida and have correspondingly few opportunities to diversify risks. They, in particular, are suffering from the storm damage. Citizens Property Insurance Corporation is among the largest regional providers. Local companies are reinsured by the Florida Hurricane Catastrophe Fund but also through private providers, primarily Gen Re, Lloyd’s of London, Munich Re and Swiss Re, according to an analysis by the rating agency Moody’s.