̽»¨¾«Ñ¡

I.I.I.'s President, Dr. Hartwig, Says Catastrophic Hurricanes Pose Threat to East & Gulf Coasts

INSURANCE INFORMATION INSTITUTE
Contact: Press Offices
New York: 212-346-5500; media@iii.org
Washington, D.C.: 202-833-1580

NEW ORLEANS, APRIL 6, 2007 - Insurers paid more than $40 billion to 1.7 million U.S. policyholders in six states after Hurricane Katrina struck in August 2005, but a storm of comparable magnitude hitting Florida or parts of the East Coast could inflict insured losses of over $100 billion, according to Dr. Robert Hartwig, president and chief economist of the ̽»¨¾«Ñ¡ Information Institute (I.I.I.). Hartwig's remarks were delivered at the 2007 National Hurricane Conference here.

"Rapid coastal development and rising property values are the primary reasons for the upward trend in insured catastrophe losses in this country," Hartwig told the conference. "And government subsidies to those who reside along the coastline only exacerbate the problem." These trends, coupled with a consensus in the meteorological community that the U.S. will see more frequent and more severe hurricanes over the next 10 to 15 years, have driven up the cost of property insurance in coastal states, even while the homeowners insurance market remains relatively stable elsewhere. In fact, the average U.S. homeowner will only see a 2 to 4 percent premium rate increase in 2007, according to an I.I.I. forecast.

Hartwig noted that four of the five states with the highest insured coastal exposure are situated on the East Coast, with Florida ranked first ($1.93 trillion), followed closely by New York ($1.91 trillion). Massachusetts ($662 billion) and New Jersey ($506 billion) ranked fourth and fifth. Texas ranked third, with total insured coastal properties valued at $740 billion. These figures were calculated by AIR Worldwide.

"Florida's state-subsidized Citizen's Property ̽»¨¾«Ñ¡ Corporation is now the largest home insurer in that state," Hartwig said. "This development will have significant repercussions for all of Florida's homeowners insurance policyholders and taxpayers after the next hurricane hits." If Citizen's does not have the financial resources to pay its claims after a severe storm, a likely scenario, state lawmakers would likely have to increase assessments for all homeowners insurance policyholders in Florida, raise taxes, or do both. Hartwig noted that the insurers of last resort in both Louisiana and Mississippi had financial obligations well in excess of their revenue stream in 2005, the year Katrina hit, as they ran deficits totaling hundreds of millions of dollars.

"Ninety-five percent of the 1.2 million homeowners insurance claims filed in Louisiana and Mississippi after Katrina have been settled, with just 2 percent in dispute," Hartwig stated. "The Gulf Coast courtroom dramas are the exception, not the rule. And insurance companies operating on the Gulf Coast did not receive a penny to recover flood-related losses."

"Ultimately, insurance prices must reflect true risk. And while insurers remain deeply committed to helping policyholders reduce vulnerability by supporting stronger building costs and mitigation, insurers have no control over local land use decisions," Hartwig said.

Hartwig's complete presentation is available online at /media/presentations/nhc2007/.