GENEVA, 9 September 2005 — Insurers yesterday released new estimates of losses from storms in Europe but not for Hurricane Katrina in the United States amid concern about the growing scale of natural disasters in wealthy and complex economies.
The Swiss insurance company Zurich Financial Services said that its costs from damage wrought by Katrina on the US Gulf Coast could not yet be estimated because of the scale of the destruction and the rescue effort. It also announced that its exposure to recent flood damage in Austria, Germany and Switzerland would be about $100 million.
The Swiss branch of the German insurer Allianz said it would be paying out more than 110 million Swiss francs ($88.5 million) for damage claims due to the flooding in Switzerland alone. Eleven people died in the three countries during flash floods and landslides caused by torrential downpours, mainly around Alpine regions and the River Danube.
Zurich said the delay with assessing United States, where officials believe the toll is 1,000 times greater, arose from the huge extent of the damage in four states. It also cited the enormous restoration effort needed in flooded New Orleans as well as “widespread and potentially long-lasting business interruptions.”
Swiss Re, the world’s second-biggest reinsurer, pointed to problems with unraveling the large number of business claims, especially in the oil industry, that would emerge from such an economically developed part of the world. It also underlined the “complexity” of insurance arrangements in the United States.
“Flood is usually taken care of by state pools and wind is insured with private industry. Now what was first, flood or wind? This is one level of complexity,” said Beat Werder, a spokesman for Swiss Re. The firm expects to suffer about $500 million claims from Hurricane Katrina, which Werder says the company can absorb without difficulty.
But he warned that the assessment was highly uncertain and hinted that some hard thinking would be needed in the aftermath of the storm. Swiss Re, along with other reinsurers, has long been warning about the impact of climate change on insurance industry and the wider economy.
Scientists say global warming caused by emissions from the oil and coal consumption is triggering more frequent and intense storms, adding to the bill from earthquakes and other disasters. “Last year there were natural catastrophe losses of probably 49 billion dollars globally, these are dimensions that the industry has never seen before,” Werder said.
The US southern seaboard is particularly exposed. In 1992, Hurricane Andrew caused about $22 billion in damage, compared to an estimated $20 billion for Katrina, according to Swiss Re. “It’s in nobody’s interest if an area gets hit by a big hurricane every ten years. Ten years is probably the time period where we say this becomes unreasonable to insure,” Werder said.
Governments had a crucial role in at least mitigating the potential for damage with zoning laws and building standards, he added. “Way more relevant than the observable effect of climate change, is the effect of more and more people moving to areas prone to be flooded or struck by hurricanes, Florida is a clear example.” The insurance industry will be taking a close look at issues like the suitability of current risk assessments, prevention measures, and raising local rates for disaster insurance, according to Werder.
Swiss Re gains about one billion dollars in premium revenue on natural disaster cover, out of a total of $30 billion in premium income. “Natural catastrophes have proven again that they are much larger than anything else in terms of loss potential,” Werder said.
Meanwhile, US Energy Secretary Samuel Bodman said four Gulf Coast refineries knocked out by Katrina will take another two months to resume operations. The United States stands ready to supply additional supplies of crude from its emergency reserves if necessary, he also said.
“We have all but four refineries now back on stream and functioning,” Bodman told the CNBC television network. The shutdown refineries will be “starting up, I would guess, in another couple of months,” he said.
The quartet can process between 700,000 and a million barrels of oil day, which represents four to five percent of total US refining capacity. At least eight refineries on the Gulf of Mexico coast suffered wind or flood damage, or loss of power, after Katrina barreled into the southern United States over a week ago. Crude oil production on offshore rigs in the Gulf is slowly getting back to normal. Flows from pipelines that deliver refined oil products such as gasoline to the rest of the United States are also back up. “The pipelines delivering refined product are now operating at 100 percent,” Bodman said.
The United States is releasing 30 million barrels of oil from its Strategic Petroleum Reserve, and its partners in the International Energy Agency are furnishing another 30 million barrels, he noted. The IEA board will meet on September 15 to take stock of the oil markets, which have been calmed by the emergency release after prices shot up in the immediate aftermath of Katrina.
“We’ll be there, and if more is needed, I expect that we would be reacting favorably,” Bodman said. Overall, he said, “we’re going to go through a period of time where there will be challenges, but I think the news thus far is good. We’re very encouraged.”