Stormy Weather for Insurance Premiums

HOLLY NOTE: Be sure to check your homeowner's policy since more companies are dropping coverage for flooding, earthquakes and now hurricanes. Hail damage insurance is now under scrutiny. Additionally, make sure your policy matches the current replacement value of your home.

When making an insurance claim, some companies' tactics may come as an ugly shock. Example: Say your home is worth $400K. Your residence sustains damage of half of that amount. You think you're OK because you've insured for $200K. Instead of insurance companies considering that you've covered the cost of the claim, they may assess it as only a 50% coverage, that you've insured only HALF the amount of the house and are entitled to only HALF the amount of damages. It's a sneaky way of not paying customers. As disasters escalate, insurance companies are looking for any way to cut costs.




April 9, 2006
By Liam Halligan
UK Telegraph

Last year Lloyd's of London made its first annual loss since 2001 - the year of the 9/11 terrorist attacks. The world's oldest and largest insurance market last week unveiled losses of £103m in 2005, having made profits of £1.4bn the previous year.

The reason, quite simply, was the weather. Lloyd's was hit with an unprecedented £3.3bn in net claims from hurricanes Katrina, Rita and Wilma, which left a trail of destruction in the US states of Louisiana, Texas and Florida.

The three storms wiped out 2m homes, 40 oil rigs and 150 offshore platforms, causing £80bn of damage and dealing a body blow to the global insurance industry. In fact, 2005 was the most costly year to date for natural disasters. Along with the devastating human impact, weather-related global insurance claims reached an eye-popping £120bn.

As well as the highest number of hurricanes since records began 150 years ago, 2005 also saw the strongest recorded hurricane and the first hurricane to reach the European mainland.

Dismissing all this as a one-off would be easier had the previous record year for freak weather not been 2004. And now scientists are predicting that 2006 could be worse still - with the US tropical storm season set to strike not only the Gulf of Mexico and Florida but perhaps New York and New England too.

Not all politicians - or even all scientists - accept that this upsurge in severe weather is due to carbon dioxide emissions, global warming or anything related to human behaviour. And it may be that some of the temperature change is part of a natural long-term meteorological trend.

But for the global insurance industry such debates are academic. The economic fallout linked to our recent weather patterns is hammering insurers' balance sheets today, pushing premiums up worldwide.

During the whole of the 1960s there were only 16 major weather-related disasters, sparking insurance claims - in today's money - of £4.5bn. The 1990s saw 72 major incidents, with insurance costs of £58bn - a 13-fold rise on three decades earlier.

And now costs are rising faster still. After all, Katrina - a single event - caused far more financial damage than all natural disasters during the whole of the 1990s.

The impact of this heavy weather falls initially on reinsurers - the insurers' insurers, which cover the firms from which you and I buy policies for our cars, homes and businesses.

In Bermuda - home to a large insurance market thanks to a benign tax regime - no fewer than 11 reinsurers posted losses in 2005, compared with only one the year before. Bermudan reinsurers paid out, on average, more than £117 last year for every £100 taken in.

Inevitably, these costs are passed on. Since Katrina, reinsurers have pushed up premiums on oil rigs in the Gulf of Mexico by an average of 300 per cent. But as they try to rebuild their capital, higher premiums are rippling across the world, affecting areas and activities seemingly unaffected by weather disasters.

The global reinsurance industry has a capital base of £130bn. As storms not only become more frequent and severe but start happening beyond their usual borders, that mighty figure could be dwarfed by a single year's claims. A truly worrying thought.

As Lord Levene, the Lloyd's chairman, says: "We must not fall into the trap of thinking that 2005 was a freak year which could never happen again".

As he knows, the fact that 2006 could be the third successive record year of climatic claims is turning risk assessment models upside down. So, wherever you live and whatever you do, expect insurance premiums to go up.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/04/09/ccliam09.xml