Utilities, Insurers Say They’re Better Prepared for Hurricane Season

May 29, 2007

Forecasts for a busier-than-normal hurricane season mean added pressure on the utility and insurance industries, but they say they’re more prepared to absorb a catastrophic hit.

Power utilities have invested in hardier equipment to better withstand storms, gas utilities have formed a resource-sharing plan that quickly sends reinforcements, and insurers have more cushion to absorb losses after reporting record operating profits in 2006.

To be sure, none are looking forward to a hurricane, and each were relieved after a relatively benign 2006 season. But they say they’ve learned from the ravages of Hurricane Katrina and the 2005 hurricane season, which caused tens of billions of dollars in damage.

National Weather Service forecasters said last week they expect 13 to 17 tropical storms this hurricane season, with seven to 10 of them becoming hurricanes and three to five of them in the strong category.

To protect against hurricane damage, electric utility Progress Energy Florida is investing $91 million this year on system maintenance and new equipment to bulk up its system. The utility came out of the 2005 and 2006 hurricane seasons relatively unscathed, but it incurred $384 million in 2004 storm costs.

Among the changes, the utility is swapping out wooden poles for concrete and steel, while also replacing some equipment along underground lines that is submersible and more water resistant, said spokeswoman Cherie Jacobs.

At FPL Group Inc., the Florida electric utility is offering to help cover up to 25 percent of the cost of moving some overhead power lines underground to better protect them from storms, spokeswoman Karen Vissepo said. Customers previously bore the entire cost of such improvements.

Natural gas utilities, meanwhile, have borrowed an idea from electric utilities in forming a mutual assistance program, said Tracey Shifflett, spokeswoman for the American Gas Association.

When a storm strikes, gas utilities across the country will be ready to send their work crews in to quickly assist those damaged by the storm.

CenterPoint Energy Inc. spokeswoman Alicia Dixon said the gas utility industry historically felt more protected from hurricanes than electric utilities, as most of their infrastructure is underground. But after Katrina, the storm surge ripped homes off foundations, creating blowing gas leaks across the Gulf Coast.

CenterPoint Energy has gas and electric operations across the South.

The insurance industry, in particular, is sensitive to hurricane activity, but it has deeper reserves this year to withstand losses after a relatively calm 2006 season led to record operating profits of $31.2 billion. That compares to an industry operating loss of almost $6 billion in 2005.

Several insurers also pulled out of the hurricane-prone Gulf Coast last year to cut their risk.

Greater participation by some state-run funds, though, disrupts the market because they often charge prices that do not adequately compensate for risk, said Insurance Information Institute Vice President Loretta Worters. Thus, insurers are competing with state funds that are charging lower rates than the actuarial tables justify.

Worters said the institute believes the potential for hurricane damage could be drastic.

“The losses could be astronomical,” she said. “The $100 billion storm is not far away.”

Topics Carriers Catastrophe Natural Disasters Hurricane

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