Tag Archives: Hurricane Maria

Why insured loss numbers for the “HIM” hurricanes are delayed

Port Arthur, Texas after Hurricane Harvey

Hurricane Harvey hit Texas in August 2017. Just weeks later, Irma made landfall in Florida, followed by Maria in Puerto Rico. The so-called “HIM” storms struck the U.S. 16 months ago, but final insured loss numbers have yet to be finalized.  Why?

There are at least two reasons: the storms happened in rapid succession, wreaking havoc on the claims settlement process; and the storms caused significant business interruption losses, which can take time to settle.

The storms happened in rapid succession. Three major hurricanes hit the U.S. within a month of each other. This put a serious strain on insurers’ ability to adjust losses – basically, investigating and settling claims. There weren’t enough local adjusters, so others had to be brought in from other states. But despite the reinforcements, there weren’t always enough adjusters to go around as storm followed storm. Claim reports were therefore delayed and the expenses for adjusting losses increased. (Similar issues cropped up during the 2005 season, when hurricanes Katrina and Rita hit Louisiana only three weeks apart.)

This problem was especially acute in Puerto Rico after Hurricane Maria. As the Property Claims Services (PCS) unit of ISO noted, loss adjusters and contractors had to be flown in from the mainland – but not nearly enough of them were available, since many were still working on damage from Harvey and Irma. Fewer adjusters and contractors meant that, in many cases, only emergency repairs could be completed. As these temporary repairs deteriorated, buildings were further damaged, and more repair payments had to be made. Additionally, PCS noted that mainland adjusters may have been unfamiliar with the insurance policies typical in Puerto Rico, leading to insurers having to reopen some claims.

Claims were also reopened in Florida after Hurricane Irma, but for different reasons. In April 2018 Florida’s Citizens Property Insurance Corp. announced that it had reopened about 37 percent of its Irma-related claims since the storm. Citizens stated that many claims required additional payments or needed more information.

A high volume of reopened claims could be due to insurers paying out losses too quickly. Some have argued that insurers in Florida had acted so quickly in an attempt to avoid dealing with assignment of benefits (AOB) claims. (Check out the I.I.I.’s recent report on Florida’s AOB crisis for more information.) Several insurers have noted that insured losses for Irma continue to rise because of AOB claims, reopened claims, and higher adjustment expenses.

Business interruption issues continue. “Business interruption” usually includes losses that result from a business’s lost revenue and increased expenses caused by property damage following a hurricane. Sometimes these policies will also cover losses from utility outages. Depending on how severe the damage is, business interruption claims can be quite large – and they can take a long time to settle.

Consider Puerto Rico: Unfortunately, Hurricane Maria slammed the island’s fragile infrastructure and energy grid. The pharmaceutical industry, which has a large manufacturing footprint on the island, was particularly affected. The commissioner of the U.S. Food and Drug Administration (FDA) noted at the time that damaged factories weren’t nearly as big a problem as an unstable electric grid. There were shortages of some drugs and medical devices for months after Maria struck.

Because of these issues, we can’t expect the final insured losses for the HIM storms until maybe mid-2019, almost two years after the fact.

Behind the Numbers: AIR’s Puerto Rico Estimate

Catastrophe modeler AIR shook up the insurance world this week with its insured loss estimate for the Caribbean from Hurricane Maria: $40 billion to $85 billion – which would put it on par with Hurricane Katrina and the 2011 Japan earthquake and tsunami as the worst insured catastrophes in history, according to I.I.I. research.

Concerned mixed with skepticism; RMS has an estimate less than half the size. This from the Artemis reinsurance blog:

The size of AIR’s industry loss estimate has already raised questions among industry analysts, some of whom are questioning the range and believe the eventual industry exposure could be even lower than the bottom end of it.

But AIR’s estimate reflects the enormous damage and disruption that hurricane Maria has caused and with Puerto Rico badly hit the final cost to insurance and reinsurance interests is going to be very high.

Late Thursday, AIR published an explanation of their estimate. They call it “all but the perfect storm for Puerto Rico.” Intense winds enveloped the island; not a corner escaped. And Puerto Rico, unlike most Caribbean islands, has a significant industrial presence – more than $120 billion, and that is where two-thirds of the AIR’s estimate comes from.

The range of the estimate is quite wide. For Puerto Rico by itself, it’s $35 billion to $70 billion. Sources of uncertainty, AIR indicates, are

  • Demand surge.
  • How dwellings will contend with the wind vs. water question.
  • How business interruption and business income losses will unfold, particularly among hotels. Other BI issues include how much excess inventory manufacturers have on hand, how soon infrastructure will resuscitate, and whether insurance settlements will be affected by political pressure.

Update: As were getting ready to post, RMS explained its pick. TL;DR – industrial buildings on the island are sturdily built, so not much damage. And Karen Clark & Co. puts Puerto Rico losses at $28 billion, in about the same range as RMS.

The Week in a Minute, 9/28/17

The III’s Michael Barry briefs our membership every week on key insurance related stories. Here are some highlights. 

  • One week after Hurricane Maria struck Puerto Rico, the U.S. territory’s residents are dealing with extensive power outages and a breakdown of the supply chain which brings food and other essentials to the island.
  • The U.S. signed an agreement with the European Union (EU) governing how U.S. insurers and reinsurers are regulated in EU nations.
  • California’s Canyon Fire (Orange/Riverside Counties) and Grass Fire (Alameda County) have generated mandatory evacuations and widespread news coverage.