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Property, business interruption expected to top hurricane claims


Property and business interruption losses will likely dominate the insurance claims from recent hurricanes Harvey and Irma, although the process is just beginning and much has yet to be discovered, observers say.

Meanwhile, experts continue to produce early tallies of the storms’ costs.

“The commercial insurance industry is bracing for a significant volume of complex property claims stemming from Irma-related losses,” Gary Marchitello, New York-based head of property broking for Willis Towers Watson P.L.C., said in an email briefing late Monday.

“Based upon our initial observations, claims may fall under either Named Windstorm or Flood coverages, or possibly both,” Mr. Marchitello said. “That determination, however, will be based specifically on the facts related to each insured and the specific policy wording governing those facts.”

Millions in Florida and Texas are without power, and some are still underwater, according to media and government reports. Estimates abound as to how long it will take to restore service, with some reaching into weeks, which will likely lead to substantial business interruption claims that could take some time to settle.

“We also expect this event to result in significant business interruption losses stemming from extensive power outages,” Mr. Marchitello said in his email. “These Business Interruption claims could take months to calculate. Even if a specific property is not damaged, the insured’s property may face other obstacles to its operations,” such as civil authority lack of ingress/egress.

“Storm surge and extensive power outages are a significant concern and will impact recovery efforts as well as the ability for businesses to restore operations,” Mr. Marchitello said.

Despite the widespread and extensive damage, Irma’s late change in direction may have spared Florida the worst.

“Given the path of the storm, and considering some major commercial centers in Miami did not suffer a direct hit, insured loss estimates are coming in far lower than originally forecast,” Mr. Marchitello said.

Costs and claims

A study from Ball State University in Muncie, Indiana, says the overall economic damage from Harvey could approach $200 billion.

“We believe damages to residential and commercial structures and contents and public infrastructure will be in the range of $198 billion from Hurricane Harvey,” said the university’s Center for Business and Economic Research of the Miller College of Business.

Using a model developed under contract with the Army Corps of Engineers and used to estimate the damages related to Hurricane Katrina, researchers at Ball State said: “Adapting these models to the Houston area, we are able to provide estimates of flood damages which are more comprehensive than insurance estimates since they include both insured and uninsured damages to both public and private infrastructure, equipment, contents and commerce.”

The researchers’ model estimates commercial structures damages at $26.67 billion; commercial equipment damages at $45.98 billion; residential structures damages at $77.23 billion; residential contents damages at $36.81 billion; commercial revenues damages at $5.85 billion; electric utility damages at $348.5 million; highway damages at $3.85 billion; and sewer system damages at $1.90 billion — for a total of $198.63 billion

Observers say the industry is positioned to handle claims and that any effect on pricing has yet to be seen.

In its credit outlook issued Monday, Moody’s Investors Service Inc. noted that both the Florida State Board of Administration Finance Corp. (Florida Hurricane Catastrophe Fund – FHCF) and Citizens Property Insurance Corp. have “substantial finance resources to help the State of Florida and its municipalities rebuild from Hurricane Irma’s damage.”

Florida Hurricane, established by the Florida Legislature in 1993 in response to Hurricane Andrew, provides reimbursement coverage to 159 insurers across the state, including Citizens, according to Moody’s.

“After 11 years with limited claims-paying events, the FHCF estimates that it has $17.5 billion of total available resources for the 2016-17 contract year,” Moody’s said.

Citizens is the third-largest property insurer in the state and also has “substantial resources to withstand damage claims from Hurricane Irma,” Moody’s said. Citizens projects that its current claims-paying ability exceeds $13.3 billion but estimates a probable maximum loss of $10.8 billion in a 1-in-250-year event.

“The commercial insurance industry continues to be well-capitalized and despite the anticipated aggregated insured losses from both Harvey and Irma, so far we have not seen any significant, general market adjustments to pricing,” Mr. Marchitello said in his email. “However, events are still folding and insurance carriers are currently evaluating their pricing positions.”