Hurricane Hermine is likely to generate insured losses no greater than $500 million, a relatively low and certainly manageable figure, yet property/casualty carriers are by no means at ease, an industry analyst says.
The $500 million figure was estimated Saturday by cat loss estimating and risk management firm Karen Clark & Company based on a forecast of more than 50,000 claims across Florida, Georgia and the Carolinas. A separate report from Keefe Bruyette & Woods analyst Meyer Shields called the expected losses “manageable” by the well-capitalized industry.
But Howard Mills, global insurance regulatory leader at Deloitte, says that while there’s no doubt insurers will weather Hermine with ease, there’s a certain level of anxiety over the many months left in the 2016 hurricane season.
“In 2005, you had Katrina, Rita and Wilma back-to-back-to-back,” Mills told Insurance Business America. “The industry will likely be nervous given that we’ve still got a long way to go this season and the temperatures are very warm. There’s no saying there won’t be a significant event this season.”
Insurers are also dealing with potential complications related to a legal tool in Florida called Assignment of Benefits, which allows contractors bill and be paid by insurers directly for work performed, without involving the insured homeowner.
It was meant to prevent homeowners from having to pay money upfront or deal with a sometimes complicated claims process, but insurers have long argued that repair vendors have taken advantage of AOB by artificially increasing the cost of claims, and even suing the insurer if it refuses to pay the bills.
In the wake of serious damage from Hurricane Hermine, inflated AOB claims are expected to make the storm an expensive one for property insurers.
“The private insurance industry has thus far absorbed the inflated claims associated with AOB, but with a significant storm like this one, AOB could be a big issue,” Mills said. “If we have a lot of insured losses, the market could see some significant disruption.”
AOB abuse has already led to significant rate hikes in South Florida, both from private insurers and the state-run insurer Citizens Property Insurance Corp. Though state lawmakers have considered several reform proposals, no material changes have yet been enacted.
Still, Mills believes consumers will be pleasantly surprised by the claims process post-Hermine. New advances in claims handling – including drone technology – should make the procedure speedy and satisfactory for consumers.
“We’ll see a much faster data return on this storm then we have in the past,” Mills said. “Insurers will be looking to showcase their new technological capabilities, and we should have a very clear picture of impact pretty early on.”
Related Stories:
Hurricane insurance premiums may rise 10% due to scams
The surprising reason Hurricane Hermine claims could cost insurers much more
