A Catastrophe for CAT Insurers?

-By Sam B | [email protected]

Houston, we have a problem; Hurricane Harvey's winds and rain have battered Houston Texas, the fourth largest city in the United States, for the last three days. At least 8 people have died with thousands homeless and another 51 centimeters of rain still possible. U.S. President Donald Trump is expected to visit the battered city today. According to Edmon Russo, a deputy district engineer for the U.S. Marine Corps, the storm generated an amount of rain that would normally be seen only once in more than 1,000 years.

Unfortunately, many residents do not have flood insurance because because Houston isn't known for flooding. Damage caused by flooding is typically not included in homeowners insurance policies, but flood damage to businesses is covered by commercial policies.Trump, facing the biggest U.S. natural disaster since he took office in January, signed a disaster proclamation for Texas on Friday, triggering federal relief efforts.

Risk modelling firms have stated that hurricane Harvey may result in economic losses of $70 billion to $90 billion(most uninsured)—that would make it only second to Katrina. Still, this is projected to be one of the costliest storm in history for U.S. insurers. J.P. Morgan currently estimates $20 billion of losses (for insurers), which is well below the losses of the $75 billion from Hurricane Katrina. However, a large storm could also allow insurers to raise rates. Insurance Brokers such as Marsh & McLennan Cos Inc, tend to benefit from a disaster as they do not have underwriting risk and typically it results in a rise in premium rates, which in turn boosts commission income.

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