Katrina could burn a huge hole in insurers' pockets, says insurer Brit |
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Wed, 07 Sep 2005 19:05
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LONDON: Hurricane Katrina that hit the city of New Orleans and the U.S. Gulf coast and brought unprecedented death and destruction in its wake could be the costliest disaster ever, with insurance claims reaching an astounding figure of 27.2 billion pounds (as much as $50 billion), warns Brit Insurance Holdings Plc. The company's chief executive Dane Douetil, told newspersons that this can be the largest insured loss ever occurred.
The ultimate insured loss may be far above the current estimates done by experts and it would be prudent to project an industry loss of nearer $50 billion than $35 billion, he said.
However, other insurers, including Lloyd's of London, wish to underplay the issue and feel the loss could not be of that order. Even analysts say it can be around $30 to$35 billion. However, even at this level, the earnings of reinsurers, who would be mostly saddled with the task of settling the claims, will be very adversely affected. The reinsurers had earlier projected bumper profits for 2005 with strong underwriting results, good investment income and relatively low claims.
Justifying his estimate, Douetil, also chairman of Lloyd's Market Association, said the complexities of settling the claims are huge. "You have buildings standing in water for what could be up to 80 days, which is the time period they're thinking of before they can get the flood water out. What you're now talking about is constructive write-off for virtually all the buildings." Factories have been washed away and even to clean up pollution caused by the disaster would cost a lot of money, he added.
The widespread flooding has caused immense damage to thousands of homes, which may effectively have to be destroyed and rebuilt.
Home policies in the affected areas do not include flood cover, which is sold separately. Insurers will now be trying to assess whether the damage was caused by winds, which is covered by domestic policies, or by flooding, which is not. Douetil says there is lot of interpretation involved.
Brit did not spell out how much could be its share of claims. However, three other U.K. insurers have come out with estimates. Wellington Underwriting said it would have claims of about $75 million, Royal & Sun Alliance will have about 25 million pounds and Goshawk Insurance Holdings $25-$30 million.
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