September 09, 2005

RMS Lifts Estimate of Insured Losses to $40-60 Billion, Total to $125

Katrina may cost insurers $60 bln - Yahoo! News

Reuters reports that Risk Management Solutions, a private risk-modelling vendor, has raised its modeled loss estimate for Hurricane Katrina from $20-$35 billion up to $40-$60 billion, out of a total damage of $125 billion. About half of the total damage will be in the New Orleans flood. RMS Increases Insured Loss Estimate for Hurricane Katrina to $20-$35 Billion

Although flood is not covered by private insurers, it will be problematic to apportion the covered damage from wind versus the excluded damage from flood, especially with regulators, media and policyholder advocates watching closely.

It remains to be seen how much liability the National Flood Insurance Program (NFIP), a division of FEMA (i.e. the U.S. taxpayer) will have due to the flooding. The program sells flood insurance below cost, with flood insurance rates deliberately set below the actuarial level in order to encourage people to build and live on flood plains, but many don't buy it anyway. The magnitude of this disaster and the locus of the flooding in a major industrialized urban region almost assures that extraordinary NFIP deficits will be booked because of Katrina. One wonders how much of the $50 billion just appropriated for FEMA will be consumed by NFIP allocated and unallocated claims expense.

DougSimpson.com/blog

Posted by dougsimpson at September 9, 2005 04:22 PM