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Monday, September 12, 2005

Swiss RE Estimate Of Katrina Cost

Swiss RE (reinsurance) doubled its estimate of Katrina's insured cost to 40 billion, but warns that it is impossible to make an accurate estimate of insured losses. Uninsured losses will amount to at least 3 times the insured figure.

Behind the scenes what is going on is that the insurance companies are not liable for flood damage, but they are liable for wind damage. This is going to amount to a windfall for lawyers, because is water driven by wind a flood loss or a wind loss? It's well established that if your roof gets ripped off and rain pours in your house that is wind damage and is covered. However flooding is not covered, and hasn't been even for storm surges.

Expect some major political negotiations on this one. The states involved are pulling out all the stops to try to get as many claims covered as possible. However, they can't push too far or property insurance will become too expensive in these areas for many people to purchase, which will mean that banks can't lend to rebuild, which will have its own repercussions. The federal flood insurance program is certainly going to take a fearful hit.

What has happened in Florida is that many homeowners now have very high deductibles and some have had trouble even getting insurance at all. I don't think that most businesses will rebuild substantial properties in New Orleans unless they have a high-ground location. I don't think they will be able to get adequate insurance to do so. Also, insurance companies will be seeking to raise premiums across the board to cover this and other similar anticipated losses.

It's my opinion, based upon my experiences, one of the highest costs incurred from this disaster should be for communications. I touched on it in my blog because it seems to be a forgotten factor to the answer for all of the "Why's"

The costs all around will be high, almost as high as those dang waters. Thanks for coming by earlier Maxed out Mama :)
Great point, Cyli. Once you lose communications you lose the ability to react intelligently. (As intelligently as anyone can in a disaster, that is.)
I used to work for GenRe. I know they are going to be taking a bath. But in the end, that is why insurance companies cede to reinsures who sell to other reinsures. It spreads the risk out amongst all of us. Those who received money from the earthquakes in Cali will help flip the bill for the SE now. And the SE will help pay for a tornado in OK sometime in the future.
Haha! I almost got a job at Gen RE waaaay back when.

Yeah, that's what reinsurance is for. But they'll have to rebuild their reserves, and that's why everybody's rates will tend to sneak up.
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