Forecast: Few Insured for Irene’s Losses in Connecticut

By | August 31, 2011

Only about 30 percent of property losses inflicted by Tropical Storm Irene in Connecticut will be covered by insurance, according to an estimate by a consulting group that said less will be covered compared to previous storms in part because insurers have been raising deductibles.

The forecast by consulting firm Kinetic Analysis Corp., which is based in Silver Spring, Md., said the storm will cause total losses of about $282 million, with insured losses of $80.5 million.

Chuck Watson, the firm’s director of research and development, said Monday that insurance companies are limiting their liability by requiring steeper deductibles based on a percentage of a property’s value rather than a dollar amount. For example, a 2 percent deductible on a house valued at $300,000 would amount to $6,000, which could be less than the cost of replacing a roof.

The forecast released Sunday is based on a computer model that accounts for the storm’s wind speeds, impact on buildings and other factors. Homeowners and businesses are only now beginning to call their insurers who will dispatch adjusters and appraisers to calculate the damage.

“It’s going to be days, weeks, months before we have any solid numbers,” Watson said.

The total impact will be about $7.2 billion among Connecticut and seven other states and Washington, D.C., Kinetic Analysis said. Of that, insured losses will be about $2.6 billion, or 36 percent of the total loss, according to the forecast.

That’s far less than the $6 billion the industry paid out after Hurricane Isabel hit the Eastern seaboard in 2003. The lower damage estimates pushed insurance stocks higher Monday. Allstate Corp. rose 7.4 percent, Hartford Financial Services Group Inc. rose 12.4 percent and Travelers Cos. Inc. rose 4.3 percent.

Insurance and banking stocks in the Standard & Poor’s 500 rose 3.3 percent, the most of the 10 company groups that make up the index.

The low insurance payouts relative to losses contrasts with $16 billion in insured losses posted following Hurricane Andrew in 1992 that were more than half of $30 billion in losses. After Hurricane Floyd in North Carolina in 1999, losses were $6 billion, with half that in insured losses, Watson said.

By calculating deductibles as a percentage of a property’s value, insurers are requiring homeowners to pay thousands more toward their insurance, Watson said.

“That shifts the whole nature of the insurance business and shifts what the homeowner needs to anticipate,” he said.

Watson said the lower insured losses are due to “minimal direct wind damage” other than what brought down trees. In addition, structure damage from Irene will likely be due to rising water from rain or coastal flooding. Those losses are not covered by private insurance, but by federal flood insurance if property owners bought the protection, he said.

Steven Weisbart, senior vice president and chief economist at the New York-based Insurance Information Institute, said business owners often buy insurance to compensate for property damage, but not for losses due to extended power outages or other interruptions that shut their business.

“It’s just not on the top of the mind for a lot of people and it should be,” he said.

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