The aftermath of Katrina and Rita has been filled with figures as the world tries to quantify one of the biggest natural catastrophes ever recorded
$150bn is the number that has been put on the cost of rebuilding, with expectations that the financial impact of the storms will see US economic growth fall 0.75% in the second half of 2005. Oil supplies dropped by an estimated 1.4 million barrels per day and natural gas supplies by an estimated 8.8 billion cubic feet per day due to shut-ins as well as direct damage from Katrina, according to the US Energy Information Association. On the insurance side of the equation, overall insured losses of $40bn-$60bn have been predicted by RMS, with most large reinsurers basing their preliminary loss estimates on a total of between $40bn-$45bn. Sadly, the only figure we can place any faith in is that delivered by the Louisiana Department of Health and Hospitals on 4 October which put the official death toll at 1,209 (972 in Louisiana and 221 in Mississippi). Of all the numbers that have been produced this is clearly the biggest.
The insurance and reinsurance industry is once again called upon to help these devastated communities rebuild. Speaking at the Monte Carlo Rendez-Vous, Joe Plumeri, CEO of Willis, called upon the insurance industry to act heroically stating that in order to do so it "... will mean that we are not about disputing claims but are about rebuilding lives."
The wind verses flood issue has seen the insurance industry once again placed under the spotlight. The political pressure which has been brought to bear on insurance and reinsurance companies has been well publicised, with Mississippi Attorney General James Hood getting more than his fair share of column inches following his decision to launch a class action against five insurers in an attempt to force companies to "pay what they owe". But the question is, what do the insurance companies owe?
Ernie Csiszar, president and CEO of the Property Casualty Insurers Association of America, is in no doubt that this move by Hood was driven by political motives rather than any sense of justice, and believes that trying to force insurers to ignore any exclusions within their policies is unconscionable. "The Mississippi Attorney General's lawsuit seeks to override the decades-old exclusions and retroactively rewrite every homeowners insurance policy, not just in the areas affected by the storm, but across the United States," he said. "Such an action is unfair to the responsible consumers who have paid the federal government for flood insurance coverage over the years. This would establish a dangerous precedent and expose insurance companies to potentially billions of dollars in claims costs for a risk in which not one dollar of premium was collected."
It is difficult to ascertain the potential impact of this political pressure on the overall insured losses for the storms, but the concern is enough to warrant the risk modellers looking at ways to factor in such an outcome into their model output.
Hemant Shah, president and CEO of RMS, while making it clear that the company did not have a position on what should and should not be paid said, "We are modelling some of what we would term 'leakage' and by this we mean losses leaking into policies that perhaps there is some ambiguity as to whether those losses were intended to be covered when the policy was written." He admitted however that while such a process involved some modelling there was also a fair amount of judgement involved. "A number of lines of business which may not only be exposed to the wind and the storm surge but the flood and the environmental exposures in the city of New Orleans are quite murky in terms of how they may or may not attach to the insurance policies."
The storm losses from Katrina and Rita have undoubtedly muddied the claims water and it will be many years before it runs clear again.