January 5, 2007

SOURCE: InsuranceNewsNet, Inc.

More than two years have passed since the most unprecedented hurricane season in the U.S., and America’s commercial property insurance market is reeling in the aftermath of 2005’s and 2006’s raging winds that swept the country.

Deaths, devastation and damage to property, apparently, are not the only grim reminders of those catastrophic gusts. Shrinking coverage, coupled with tremendous rate increases, specifically within the California earthquake fault line and in the Gulf and East coast areas, are leaving risk managers quite overwrought.

Here is a list of statistics that caused risk managers many sleepless nights:

1. Experts initially estimated the cost of insured losses caused by 2005's storms at 75 billion U.S. dollars.
2. A new record on the net tropical cyclone (NTC) scale was set by the 2005 hurricane season.  The prior record of 230 marked in 1950 was easily overtaken by 2005's NTC index of 249. (* The NTC measures storm intensity, duration and quantity that form in a season.)
3. There were 26 named-storms that formed in 2005, which marked it as the most active season ever. The record before was 21 named-storms (1933).
4. Five storms alone formed in July, a record for just a month. Among those storms was the most powerful July storm ever, Hurricane Dennis.
5. Katrina, Rita, and Wilma…the three major hurricanes hit Category Five status on the Saffir-Simpson scale. Also a new record.
   6.Four great hurricanes made landfall in the U.S., also a new record.  According to the Insurance Services Office Inc.'s Property Claim Services unit, the insured property damage from the five major hurricanes combined reached $52.7 billion (or 93% of 2005's insured property damage amount of $56.8 billion)
   7.Hurricane Katrina alone caused far more than the total sustained by the property-casualty insurance industry in 2004 (i.e. Katrina caused more than $38 billion in insured property damage).  The insured damage posted by Katrina in 2005 was likewise a record (i.e. $27.3 billion).

The good news is, despite grim, above-average hurricane activity in the Atlantic and Gulf coasts, Mother Nature cut property insurers some slack, as 2006 luckily ended without notching any records in the hurricane or storm categories.

The bad news is, there’s still no significant rate relief for buyers in sight.  By the end of 2006, no rate decreases or flattening of rates occurred.

The property-casualty industry has been broken and battered by terrorism insurance concerns as well. Uncertainty and speculation over what the federal government specifically plans to do about terrorism insurance complicated the issue. To date, the government has sidestepped the question, preferring to remain vague on whether it would or would not support the program’s extension.

As the Democrats assume position in the Senate and House committees tasked to breathe fresh life into the Federal Terrorism Insurance Program, the race surges on with no signs of any gains in clear sight. (*The program expires on Dec. 31, 2007.)

In addition, hurricane forecasters see storms a-brewing anew on the horizons.  While not as fierce as the 2005 hurricane season, 2007 may yet be another problem year.

It’s only a matter of time before the next big one hits the U.S.  With uncertain help coming from the government, the question remains: How prepared will risk managers be?

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