New information indicates the impact of Katrina on the insurance industry will likely be greater than originally forecast. Post-storm flooding throughout the area, and related damage to commercial businesses and private property appears likely to drive insured claims for Katrina over $17 billion to perhaps $25 billion.
In addition, the Federally run flood insurance program will take a big hit. The program, which is already underfunded (it had to borrow $300 million last year from the Treasury to cover claims from Ivan et al), provides flood insurance totaling $600 billion to 4.5 million properties, primarily in coastal areas. Expect flood rates to increase significantly and soon.
The higher claims costs and the growing recognition in the insurance community of the potential for another devastating natural or man-caused disaster will drive up insurance costs for all lines of property and casualty coverage. While some uninformed pundits contend that the only cost increases will be borne by those in areas directly affected by the storm, they fail to realize that reinsurance rates industry-wide will increase, and insurers seeking to recoup losses will have to increase prices in other, non-related lines.
What does this mean for you?
The result – the softening in the property and casualty market will likely taper off, prices will stabilize somewhat, and all of us will end up paying for Katrina.
But that’s why they call it insurance.
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