Insurance premiums could climb beyond disaster areas
Companies look to recoup billions paid after Hurricanes Harvey, Irma
You may not live in one of the areas hit by Hurricanes Harvey and Irma, but that doesn’t mean your insurance rates will go unscathed.
Motorists and homeowners throughout Texas and Florida, as well as those who live anywhere from Alabama to Wyoming, could see their premiums rise as insurance companies pay out billions of dollars to customers whose properties were destroyed or damaged.
The estimated U.S. insured losses, excluding National Flood Insurance Program claims, are $20 billion to $25 billion from Harvey and $40 billion to $60 billion from Irma, according to JLT Re, a global reinsurance brokerage and consulting firm.
Insurers look to stay flush as they cover their reinsurance policies — which keep them insured and able to mitigate risk — while trying to prepare for any extreme weather that could harm their customers.
“There’s an increased percep- tion of risk. There’s less capital supporting the insurance industry, and there’s equal demand,” says David Havens, managing director of the investment bank Imperial Capital. “The way insurers respond to that is to raise prices, because they need to replenish.”
People living in the areas slammed by the hurricanes are most at risk for auto and home-
owners rate increases. Because insurance is handled by each state individually, people elsewhere in Texas and Florida could see a bump. Drivers in states adjacent to those Harvey and Irma hammered also may face rate hikes, because some insurers calculate car insurance rates regionally.
Insurers can’t jack up premiums in random states to make up for large payouts to Harvey and Irma victims, but a ripple effect can happen.
“They can’t go to Nevada and say, ‘ We need to raise rates here because of money in Texas.’ They could say, ‘ We’ve lost so much in Texas that we don’t want to write as much business in Nevada,’ ” Havens says.
There’s $1.3 trillion in capital ready to support these losses, according to Havens.
It’s too early to know how much Harvey and Irma could raise rates. An analysis of average insurance premiums in states hit by some of the costliest hurricanes in U.S. history shows what could happen. For example:
New Jersey homeowner:
$926 in 2011, the year before Superstorm Sandy; $1,068 in 2013, the year after.
New York motorist:
$1,108.64 in 2011; $1,181.86 in 2013.
$860.66 in 2004, the year before Hurricane Katrina; $969 in 2006, the year after.
$1,228.10 in 2004; $1,254.66 in
The higher dollar amounts can’t be blamed solely on extreme weather; insurance premiums can go up for a variety of reasons, experts point out.
Replacement costs of destroyed homes may be larger because of elevated construction and labor costs, for instance, and the distracted-driving trend across the USA contributes to au- to insurance premium hikes.
Insurance companies’ concerns over their own cash flows stem from the long, low-interest environment which has limited the returns on their investments, CFRA insurance equity analyst Cathy Seifert says.
Because of Harvey and Irma, she anticipates reinsurance rates rising, prompting insurance companies to pass along those costs to ordinary Americans.
The American Insurance Association, the trade group for the property-casualty insurance industry, says it’s too early to know whether rates will go up. Actuaries will rely on meteorological models and probability predictions to calculate how much it’ll be to cover losses.
Because of insurers’ preparation for extreme weather and the competitive nature of the insurance marketplace, Ted Nickel, president of the National Association of Insurance Commissioners, doesn’t forecast higher insurance costs.
“These companies would’ve built up a surplus with their modeling to be ready for their big event whether it occurred 10 years ago or this week,” he explains. “These catastrophes are built into their pricing. Will it be zero? I don’t know. I wouldn’t want someone in West Texas to subsidize my insurance in Houston.”
Hurricane Irma, which bulldozed through the Florida Keys, could rack up $40 billion-$60 billion in insurance losses.