Insurance market buffeted by Harvey
As Hurricane Harvey headed east over New Orleans and towards Florida on Tuesday morning, the insurance industry was bracing itself to count the cost of what is already being described as “one of the ten costliest storms in US history”.
The scale of the storm and the destruction it has wreaked across Texas, especially Houston and eastern parts of the state, has shocked onlookers, including President Trump, who tweeted that Harvey was a “once in 500 year flood”, and has seen seen shares in insurers take a hit.
One of the largest US property and casualty insurance companies, Travelers, saw a downturn of 3% on Monday, while other blue-chip insurance companies that include Axis Capital and Progressive Corp saw falls that ranged from 1.7% to 2.6%.
More than 450,000 people are expected to seek disaster assistance, with 30,000 people being housed in temporary shelters, Brock Long, a spokesperson for the Federal Emergency Management Agency, said.
Total payout expected to be ‘relatively low’
The total payout for insurers, however, is expected to be substantially lower than for Hurricane Katrina, considering the scale and extent of the damage caused by the hurricane, with JPMorgan Chase’s “best guess” estimate placing it between US$10bn and US$20bn.
This compared with total insured losses for Hurricane Katrina in 2005 of US$80.7bn, quoted on the Bloomberg website, and US$37.3bn for Japan’s earthquake and subsequent tsunami in 2011.
The fact that most of the damage wreaked by Hurricane Harvey has been caused by flooding is being seen as a let-off for private-sector insurers who exclude flood damage from residential policies.
“The industry dodged what could have been an extremely high level of losses,” said Elyse Greenspan, insurance analyst at Wells Fargo, quoted in Financial Times. Instead, it is the government who will be facing a huge bill as flooding is covered by the taxpayer-funded National Flood Insurance Program.
Ironically, the program must be renewed by the support of Congress before the end of September or it will cease to exist.
Storm made worse by humans
In what might be seen as a rebuke to President Trump, who unilaterally withdrew from the Paris accord on climate change last month, experts were uniting last night to assert that, while Hurricane Harvey was not caused by climate change, human-caused effects made its ferocity far greater.
“Harvey was almost certainly more intense than it would have been in the absence of human-caused warming, which means stronger winds, more wind damage, and a larger storm surge,” said Michael Mann, professor of Atmospheric Science at Penn State.
Mann explains that sea-level rise of around six inches in the past few decades is almost certainly down to human-activity such as oil drilling and exploration. Added to that, warmer waters in the Gulf of Mexico, where Harvey was formed, mean that the system absorbed more water than it would have done, leading to far greater rainfall than would otherwise have been the case.