Sandy's backlash: Will prices on reinsurance rise and send back-door premium hit to Floridians?
AP photo: Ana Andjelic
Wake up and good morning. Hurricane Sandy will be one of the costliest storms ever. So, of course, the debate's already under way:
Will Superstorm Sandy's mugging of the Northeast mean higher insurance rates for Florida?
The issue is not over the ability of frontline insurers to pay up. They apparently are swimming in capital since there have been few big storm payouts this year. But, as this South Florida Sun Sentinel story points out, the reinsurance companies that are on the hook for Sandy are pretty much the same ones that backstop insurers in Florida. So the threat is rate pressure essentially coming to Floridians via the back door: reinsurance.
Reinsurance makes up as much as 40 percent of premiums for some small insurers that have limited capital to cover potential losses from a disaster, the Sun Sentinel reports.
Much of the damage delivered by Sandy is from flooding, which is not covered by private insurers but by an already financially pressured federal flood insurance program. However, two prominent disaster modeling firms still say private insurers face hefty payouts. AIR Worldwide estimates the industry faces exposure between $7 billion and $15 billion. Another modeler, Eqecat, says insured damages will be around $10 billion with total economic damages twice that at $20 billion. Read more from the Wall Street Journal and USA Today.
The insurance industry downplays any ripple effect on Florida insurance premiums. "What happens in Florida, stays in Florida," Lynne McChristian, Florida spokesperson for the Insurance Information Institute, says in this Fort Myers News Press story, meaning that Florida insurance premiums are priced based on the loss experience in Florida -- not elsewhere.
What is factored into Florida premium pricing, however, is the cost of reinsurance. So it may boil down to this: Will Sandy's costs be severe enough to force reinsurance prices up? Or will Sandy simply deliver most of its price tag to the national flood insurance program?
-- Robert Trigaux, Business Columnist, Tampa Bay Times