In­sur­ance pre­mi­ums could climb be­yond dis­as­ter ar­eas

Com­pa­nies look to re­coup bil­lions paid af­ter Hur­ri­canes Har­vey, Irma

USA TODAY US Edition - - FRONT PAGE - Zlati Meyer

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.

Mis­sis­sippi home­owner:

$860.66 in 2004, the year be­fore Hur­ri­cane Ka­t­rina; $969 in 2006, the year af­ter.

Louisiana mo­torist:

$1,228.10 in 2004; $1,254.66 in

2006.

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.”

ROD­NEY WHITE AND MICHAEL ZAMORA, THE DES MOINES REG­IS­TER

Hur­ri­cane Irma, which bull­dozed through the Florida Keys, could rack up $40 bil­lion-$60 bil­lion in in­sur­ance losses.

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