Insurance companies likely to hike rates in 2012
Insurance companies are likely to end 2011 in the black, despite a string of weather disasters. But insurance companies are expected to raise premiums..
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Disasters overseas, as in Japan, have escalated the financial burdens for insurers, many of which have affiliates abroad.Skip to next paragraph
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Hard-hit areas, like North Carolina's coast, will suffer from lost tourism, on top of the hurricane's destruction.
The national economy, though, will scarcely feel the impact of Irene.
"Without minimizing the pain and suffering for the people affected, from an economic perspective, this is a fairly small event," said Nariman Behravesh, chief economist at IHS.
The economic stimulus from the storm will be about twice the cost of its damages, Litan said. Yet the benefit will be slight, considering the relatively minor damage Irene caused. Adjustments to economic growth forecasts resulting from Irene are unlikely, analysts at IHS and Moody's Analytics said.
Rebuilding will be concentrated in relatively small areas and in industries such as construction. Litan suggested it could spark a "short-term boom for some construction workers and contractors who have been out of work."
An economic uptick is most likely in states such as Vermont and New Hampshire. Their economies are small enough to benefit from disaster-related money. New York and New Jersey, by contrast, are too economically vast to benefit much, Litan said.
Nationally, most economists expect an increase in temporary layoffs and job losses. The economy would likely regain any drop in output or spending by year's end, they said.
One factor limiting insurers' losses from Irene is that much of the damage was from flooding and storm surges. Standard homeowner's policies don't cover such damage.
Wind damage is typically covered by homeowner insurance. But wind speeds weren't strong enough to cause major structural damage, said Rod Fox, CEO of TigerRisk Partners — especially by the time Irene reached New York.
Still, premiums are rising. One reason is that people become willing to pay more after disasters like those that struck Japan, Missouri and North Carolina this year.
Insurance companies' profits this year are expected to be modest relative to the money they hold in reserve or investment accounts. They must invest safely, to protect against short-term swings in the financial markets.
That limits their investment returns. To boost revenue, they must raise prices.
Don J. Metz, co-owner of Morse, Harwell, Jiles Insurance, a broker in Poplar Bluff, Mo., an area struck by tornadoes and floods this spring, said insurers he works with have been raising premiums as policies have come up for renewal.
He's seen premium increases of 10 percent and higher.
"More and more, it's going up in the last year or the last two years," Metz said, adding that increases used to be just 1 or 2 percent a year.
By midday Monday, Ericson Insurance Advisors in Washington, Conn., had taken claims for about 100 customers reporting damage related to Irene.
Ericson President Spencer Houldin said he's been seeing rates spike between 7 and 20 percent.
"That's not an exaggeration," he said. "We've been seeing in the last six months some significant rate increases."
Last winter, the agency handled more than 1,000 claims related to ice storms and a rare tornado that hit western Massachusetts.
This past spring, Allstate CEO Thomas Wilson made clear that insurance companies expect more severe weather to result from climate change and are pricing their policies accordingly.
"We are acting and running our homeowners' business as if that is a permanent change, as opposed to an anomaly," he said.