Revision--Estimates to top 50 BILLION! and probably more (article)
This Meteorological Term Will Cost Insurers Billions
By Amanda Alix | More Articles
November 2, 2012 | Comments (0)
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Sandy may have been a slow-moving storm, but the damage estimates are piling up quickly. Just a couple of days ago, modeling firm Eqecat predicted losses of up to $20 billion; now, that upper level sits at $50 billion and is likely to go higher.
The amount for which property and casualty insurers will be liable will grow, too – and not just because total damage estimates are rising. The governors of New York, New Jersey, and Connecticut have announced that Sandy was not a hurricane, but a tropical storm, a classification that, even with the older damage estimates, will ramp up insurers' payouts into the $7 billion to $15 billion category.
Storm classifications make a difference for insurers and insured
As devastating hurricanes have become more frequent, P&C insurers have amended their policies to include higher deductibles -- often expressed as a percentage of the home's insured value -- for customers experiencing damages from those storms. This can be an unwelcome surprise to policyholders, who then must shoulder a greater portion of rebuilding costs.
Luckily for them, Sandy's classification was changed, just prior to landfall, from hurricane to post-tropical storm by the National Weather Service. This gave states leeway in declaring how claims would be handled. Maryland is also treating Sandy as a tropical storm, since state law requires an actual hurricane warning for the state in order for percentage deductibles to kick in.
Insurers may be wounded, but not mortally
Needless to say, major northeastern insurers like Allstate (NYSE: ALL ) , Chubb (NYSE: CB ) , and Travelers (NYSE: TRV ) have seen their stock take a hit over the past few days; only Hartford Financial (NYSE: HIG ) , inexplicably, has seen its share price rise. Allstate, which just turned in a stellar Q3 report, has gone on the record as saying that Sandy will not materially affect the giant insurer in the current quarter. Of course, with damage estimates climbing daily, that prediction may be a bit premature.