Cleaning up after Hurricane Katrina will produce the biggest insurance bill in history, possibly as much as $50-billion — twice as much as some early estimates.
The prediction by Dane Douetil, chief executive of Brit Insurance, which runs the eighth-largest syndicate at the Lloyd’s of London insurance market, was accompanied by forecasts of rising premiums, particularly for commercial property and reinsurance in the United States.
It will still be some time before the official bill can be calculated.
Executives from Lloyd’s are flying to Louisiana and Mississippi this week, almost a fortnight after Katrina struck. Many insurers have yet to send loss adjusters because of the severity of the situation.
Some insurers last week put early estimates on their own exposure to the disaster. Royal & Sun Alliance expected $46-million worth of claims while Wellington Underwriting, which among other things insures oil rigs in the area, put its loss at $75-million.
Goshawk said it could contain its losses at between $25-million and $30-million because of its own re-insurance cover, but warned that as the hurricane season runs until the end of October further losses may yet be incurred.
Douetil, who is also chairperson of the Lloyd’s Market Association, said that the hurricane ”is likely to be the biggest ever insured loss. About $50-billion would not be a surprising loss.”
The figure easily surpasses the insurance bill for Hurricane Andrew, which hit Florida in 1992. The damage ran to $22-billion in today’s money, the previous record for a single natural disaster.
Douetil was not yet ready to put a specific figure on Brit’s exposure to Katrina, but said the group had made an indicative loss from US wind storms of $151-million.
He said totting up the bill for Katrina was difficult because, unlike other flood damage, the waters had not swept into buildings and then drained away. Instead, it was stagnant and mixed with oil and other pollutants. Buildings may have to be completely rebuilt.
Policies sold to homeowners in the affected areas do not include flood cover, which is sold separately because of the high risk. Insurers will now be trying to assess whether the damage was caused by winds, which is covered by domestic policies, or by flooding, which is not. Douetil said this meant that the situation was ”open to interpretation”.
Preben Prebensen, Wellington chief executive, said the insurer had been expecting to step back from the market in 2006 but now that premiums were likely to rise it would consider increasing its activity.
Wellington’s estimated loss of $75-million is similar to its experience from last year’s four hurricanes — Charley, Frances, Ivan and Jeanne, which together are thought to have cost more than Andrew in 1992.
Companies seeking catastrophe insurance now would pay as much for cover for the remaining four months of the year as they would have done at the start of the year for the whole 12 months. — Â