Hurricane Jeanne, the fourth major storm to hit Florida this year, has caused between $4 billion and $14 billion in insured losses in the state, meaning that 2004 may now be the insurance industry’s costliest year for U.S. hurricane losses.
According to ratings agency Fitch the combined 1992 total of $22 billion insured losses (in current dollars) for hurricanes Andrew and Iniki may now have been exceeded by the total losses from Charley, Frances, Ivan and Jeanne. It is the first time four hurricanes have made landfall in the same U.S. state in the same year since 1886, when four hit Texas. In its preliminary analysis, Fitch said that Jeanne further increases the likelihood of insurance and reinsurance price increases. The ratings agency said that it still believes primary insurance companies will bear a disproportionate amount of the cost of this year’s hurricane losses compared with reinsurance companies, and that each successive storm of this scale (as opposed to a single large storm on the scale of Andrew in 1992) would only increase this imbalance.
The storm ripped through the Caribbean last week, killing more than 1,500 as it devastated Haiti. Jeanne made a number of changes in its direction and intensity before eventually reaching Florida on Saturday as a category three hurricane.
And Jeanne battered the same stretch of the state’s central Atlantic coast as Hurricane Frances three weeks ago, claiming at least six lives and causing further misery and destruction for residents still trying to rebuild their lives following their recent losses. For the insurance industry, this will bring the additional difficulty of sorting out what damage came from what storm.
In its preliminary analysis, Fitch said that this problem is likely to increase insured losses, with the added possibility that loss estimates from earlier storms may grow if losses from Jeanne are attributed to these storms.
The accumulated damage from both storms may also cause further friction between insurers and policyholders over the contentious issue of the 5% deductibles which are applied to any claims made on homeowner policies within the state. Local press reports have indicated that residents reacted angrily when expected to pay separate deductibles for claims relating to Charley and Frances, while state head of financial services Tom Gallagher has called for the rules to be changed so that policyholders are only charged one deductible each hurricane season. The increased difficulty in separating damage from Frances and Jeanne means that dispute risk over deductibles will be high, Fitch said.
“There could be a significant number of disputes between primary insurers and policyholders as to the application of deductibles. To the extent these disputes increase insured losses, they could also generate disputes between primary insurers and reinsurers,” the ratings agency warned in its preliminary analysis. Governor Jeb Bush has indicated that a special legislative session will be staged in December to discuss deductibles as well as other potential insurance reforms.
Catastrophe modeling agency Risk Management Solutions (RMS) added that if the overlap of damages between Frances and Jeanne causes deductibles to be waived for some properties, initial estimates of insured losses from Jeanne could rise. RMS, which sent its reconnaissance team into Florida to begin assessment of damage yesterday, has released an initial estimate of insured losses of between $4 billion and $8 billion from Jeanne, adding that a fifth storm land-falling in Florida this year would be an event expected to occur only once every few thousand years. AIR said that it was estimating insured losses of $5 billion to $9 billion, while California-based risk modeling agency Eqecat expected insured losses from Jeanne to be between $6 billion and $14 billion.
Current estimates by the New Jersey-based Insurance Services Office’s Property Claims Services place total industry losses at $6.8 billion for Charley and $4.4 billion for Frances, while industry estimates are indicating a cost to insurers of $3 billion to $6 billion from Ivan. It now seems likely that Jeanne will be the most costly to insurers of this year’s hurricanes to date.
St. Paul Travelers became the latest insurer to release loss estimates from Frances at the end of last week. It expects net losses of around $75 million, with $30 million of these expected to be commercial losses. The remaining losses were made up of specialty ($21 million) and personal lines ($24 million).