Hurricane Katrina, which pummelled the United States Gulf Coast with winds up to 150 mph yesterday, could make insurance rates rise here even higher than the current post-Ivan levels.
According to estimates of Risk Management Solutions, a California-based consulting firm, Katrina will likely cause insured losses of between $10 billion to $25 billion dollars, which means it could surpass Hurricane Andrew as the most costly hurricane on record.
Andrew, which made a US landfall in South Florida and on the Gulf Coast in 1992, caused about $21 billion in insured losses.
Bryan Murphy, the managing director of Island Heritage Insurance, thinks Cayman could see higher rates if the initial estimates are accurate.
‘It depends on the actual amount of market loss,’ he said. ‘Up to two billion (dollars) is the size the industry expects, and would not have a huge impact.
‘But if it becomes an Andrew with 15 to 20 billion dollars of losses, I can assure you it will have an impact.’
Mr. Murphy explained that even though Katrina did not impact Cayman, it was still a Caribbean Basin hurricane, meaning it would affect insurance rates in the entire region.
However, Danny Scott, president and CEO of Cayman General Insurance, thinks Cayman rates might not increase because of Katrina.
‘I don’t see them going up any further,’ he said. ‘They’re at a pretty high level now, which I think is sufficient.’
Instead, Mr. Scott said he thinks other Caribbean territories that have not been directly impacted by a recent hurricane will have to help pay the bill.
‘They’ll be asked to put more into the pot, so to speak,’ he said.
Even if insurances rates do not rise here because of Katrina, Mr. Scott thinks the storm only solidifies the current high rates.
‘Anybody who thought insurance costs would slide south is in for a rude awakening,’ he said. ‘We’re not going to see a soft market here for many years to come.’
Mr. Scott said he hoped insured losses were toward the lower end of the estimates since Katrina made landfall just east of New Orleans, sparing the major city of the worst winds in the northeast quadrant of the storm.
However, Katrina is expected to cause a wide swath of destruction as it makes its way north through the United States, bringing tropical storm-force winds possibly as far north as Tennessee.
Even if Katrina, which already caused significant damage in South Florida, does not surpass the $21 billion cost of Hurricane Andrew, it will almost assuredly move past Hurricane Charley as the second most costly hurricane on record.
Charley caused $7.5 billion of damage when it made landfall in Florida and the Carolinas in August of last year.