Those living in the Northeast region of the United States couldn't help but heave a big sigh of relief last week when they discovered weather experts were wrong to anticipate Hurricane Charley coming towards them.
But while residents on the East Coast were mercifully spared, Floridians weren't so lucky as Florida continues to be in a state of emergency in some parts, with estimates of the total destruction from the category four hurricane costing anywhere between $10 billion and $15 billion. Residents in areas that were the worst hit, including the town of Punta Gorda, continue to struggle without access to clean water, electricity, and other basic amenities.
For insurance companies too, the problems caused by the hurricane are just beginning.
The New York-based Insurance Information Institute estimates that insurers are likely to pay out about $7.4 billion in claims as a result of the hurricane.
"The storm...ranks as the second most costly in U.S. history surpassed only by Hurricane Andrew," said the institute's chief economist Robert Hartwig. But he pointed out that insurance companies should be able to absorb the costs from the latest hurricane.
"While formidable, Charley falls generally within the range of catastrophic risk that insurers anticipated and built into insurance premiums for homeowners and businesses in hurricane prone areas. I would not expect the storm by itself to have a significant effect on the availability or cost of insurance in Florida," Hartwig said.
Moreover, insurance analysts point out that private companies will not have to pay for crop losses, as farming insurance is usually covered by the government. So while the citrus crop may be devastated in some areas of the Sunshine State, most farmers have crop insurance policies with the U.S. Department of Agriculture.
That's not to say, however, that insurance companies won't feel the pain from the disaster.
Swiss insurance giant Zurich Financial reported Thursday that the Florida hurricane will cost them at least $150 million in reinsurance.
In announcing their latest earnings results for the first six months of this year, Zurich Financial said that "we knew that the benign environment we have seen in the last 18 months, which was characterized by the absence of large catastrophes and low claim frequencies, would not continue forever. Now Hurricane Charley has reminded us of this point rather painfully."
Indeed, the global insurance group had been hard hit by payments required following the Sept. 11 attacks in 2001, and had been particularly concerned from a business perspective about another terrorist strike in the U.S. mainland.
It was also hurt by the surge in claims following Hurricane Andrew, which still remains the most costly hurricane in U.S. history.
Hurricane Andrew's total insurance payment costs reached about $15.5 billion in 1992, as approximately 82,000 businesses were destroyed or damaged. Moreover, about 10 percent of businesses in the worst-hit counties of Dade, Broward, and Monroe counties had to fold as a result of the hurricane, leading to 8,600 people becoming unemployed.
It also wiped out some of the smaller, local insurance companies within Florida as they were unable to make the claims payments due to their limited reserves. Since then, however, the insurance industry has raised their premiums, with many companies doubling or even tripling their premiums since Andrew hit. That gives insurers more reserves with which to handle claims. Moreover, the state set up the Florida Hurricane Catastrophe Fund in 1994 to provide reinsurance to companies that make residential policies in the state, so many analysts expect companies to be able to bear the losses from the latest natural disaster. Specifically, the fund will make sure that insurers will be able to pay the claims they receive and remain in business.
Meanwhile, residents are quickly filing their claims.
The Insurance Information Institute said that thousands of insurance company claim adjusters from across the United States are now in Florida to speed up the claims settlement process, with many companies setting up 1-800 numbers specifically geared towards Hurricane Charley's victims.
State Farm insurance group said earlier this week that it received claims from nearly 19,500 homeowners and nearly 1,600 automobile owners, and those numbers are expected to rise over the next few weeks, once people settle down to file the paperwork.
Other major insurance companies, including AIG and Allstate, however, have declined to comment on the costs of the latest hurricane for the time being.
