The record total of homeowners insurance claims payments resulting from the 2005 hurricanes in Mississippi is enough to wipe out all homeowners premiums paid in the state during the past 17 years. In Louisiana, the total is enough to wipe out all homeowners premiums paid during the past 25 years, as well as every dollar of homeowners insurance profits ever earned in Louisiana.
The magnitude of the loss will force a fundamental reassessment of risk in the both states by insurance companies, according to the Insurance Information Institute.
Homeowners insurers in Mississippi are expected to pay $5.5 billion in claims from Hurricanes Katrina and Rita, an amount equal to all homeowners insurance premiums paid in the state since 1989 and nearly nine times the estimated $625 million in homeowners premiums paid during 2004.
Homeowners insurance in Mississippi was generally unprofitable even before Katrina struck. In the 20 year period from 1985 through 2004, homeowners insurers sustained a net loss of $258 million, even after accounting for investment income earned.
Insurers will pay an estimated $5.475 billion on 355,000 claims to homeowners in Mississippi from Hurricane Katrina and $20 million on 5,000 homeowners claims from Hurricane Rita, according to ISO.
Homeowners insurers in Louisiana have earned only $17.3 million in profits, including investment income, since 1985. The record losses of 2005 erased this modest sum as well as all previous profits earned.
Insurers will pay an estimated $10.9 billion on 695,000 claims to homeowners in Louisiana from Hurricane Katrina and $1.5 billion on 130,000 homeowners claims from Hurricane Rita, according to ISO.
Overall insured catastrophe losses in 2005 exceeded $55 billion, a new record. The majority of those losses occurred in Louisiana and Mississippi. Hurricanes Katrina, Rita, Wilma and Dennis resulted in a total of approximately three million claims.
Dr. Robert Hartwig, III chief economist, pointed out several factors that home insurers will be considering in their reassessment of risk in Mississippi and Louisiana. They include:
* Predictions by meteorologists that hurricanes will be more frequent and more intense for the next 15 to 20 years.
* Uncertainty surrounding the enactment of a new statewide building code in Mississippi, its enforcement and where homeowners will be allowed to be rebuild.
* Uncertainty surrounding where homeowners will be allowed to be rebuild and to what standard. Enforcement of the new statewide building code will be an issue. It is also unclear what degree of protection newly rebuilt levees will afford New Orleans.
* Lawsuits, such as those filed by Mississippi Attorney General Jim Hood and others that seek payments for flood damage under homeowners policies which contain long-standing and explicit exclusions for such losses also present a problem. Insurers are concerned that they could be held liable for billions of dollars in losses for which they have collected no premiums and have no reserves.
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