Florida was spared Hurricane Irene's wrath, but that doesn't mean homeowners here won't have a price to pay down the road.
The cost of all that flooding could be the first factor to affect our pocketbooks. The National Flood Insurance Program, run through the Federal Emergency Management Agency, was essentially bankrupted after Hurricane Katrina in 2005. So taxpayers across the country could be on the hook to bail out hundreds of millions of dollars, perhaps more than $1 billion, in insured flood losses from Irene.
The other pocketbook issue: reinsurance, the added layer of coverage that insurers buy to protect themselves against catastrophic loss. Typically, when the price of reinsurance goes up, insurers pass that cost on to their policyholders.
Hurricane Irene caused between $3 billion and $5 billion in insured (nonflood) losses, according to early estimates from the Insurance Information Institute. That's not enough to move the reinsurance market by itself. But put together with other catastrophes this year, particularly tornadoes from Alabama to Missouri, and it means reinsurers have spent far more than anticipated.
Bob Hartwig, an economist and president of Insurance Information Institute, said his "back of the envelope" calculation is that total insured losses in the United States so far this year are in the $22 billion range. That would make 2011 the seventh most expensive year ever after adjusting for inflation.
"That does put some pressure on the price of reinsurance," Hartwig said. "Rates would move up a bit, especially in more catastrophe-prone areas." Areas, for example, like Florida.
Ratings agency A.M. Best also said Irene adds to a year of above-normal frequency of thunderstorms and tornadoes, which could lead to higher reinsurance costs. But given we're in the heart of hurricane season, the agency said, what happens with the next round of insurance rates is yet to be determined.
Regardless, the impact won't be felt immediately.
Property insurers are already operating under reinsurance rates set for the season. New contracts, for the most part, won't become effective until next January, Hartwig said.
Bob Warren, client services manager with property insurance ratings agency Demotech, said it's too early to calculate insured damages from Irene. Ultimately, though, he thinks the biggest cost may be tied to flooding along the coast and throughout New England.
Catastrophe modeling firm Eqecat Inc. said rainfall may be "the most damaging component" associated with the storm, while risk management firm Kinetic Analysis has said flood damage alone could total $1 billion.
What's unknown is how much damage will be covered under the federal flood insurance program and how much money Congress will need to bail it out.
"Eventually, the federal government is going to make sure that the fund is covered for future needs, not just (paying Irene claims)," Warren said. "That's a taxpayer issue."
Jeff Harrington can be reached at email@example.com or (727) 893-8242.