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Insurance Industry Spared Major Costs From Hurricane Irene

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It's too early to know how much damage Irene caused, but property-casualty insurers are likely to be relieved after claims are tallied.

Two agencies that estimate storm-related claims have said Irene could cost property-casualty insurers less than expected - perhaps as low as $2.5 billion, which is far less than large hurricanes that have hit the United States before.

Several factors helped spare the insurance industry. Hurricane Irene was downgraded to a tropical storm early Sunday before plowing into New England, but the downgrade came late, so the storm was still classified as a hurricane for insurance purposes -- meaning it brought much higher deductibles.

Also, most of the damage appears to be related to flooding, which is not covered by homeowners' insurance.

The damage is still vividly devastating. A surging tide wrenched homes off their foundations in East Haven. Raging rivers were overwhelmed with rain and runoff, swamping much of New England. And wind toppled trees and branches in a massive swath along the East Coast, rendering power lines limp as linguine.

Despite the wreckage, one group that estimates insurance losses says Irene will cost the property-casualty industry about $2.58 billion for the whole East Coast.

Kinetic Analysis Corp., which models catastrophe damage for insurance companies, estimated Irene to have caused about $80.5 million in insured losses to property in Connecticut.

AIR Worldwide estimated insurance companies would pay between $3 billion and $6 billion.

"After battering the East Coast over the weekend, Irene weakened considerably on its way toward the Canadian border," said Tim Doggett, principal scientist at AIR Worldwide. "The storm has transitioned to an extratropical storm system, having become absorbed in a large frontal system."

Compare that with Hurricane Katrina in 2005 which caused $41.1 billion in losses along the Gulf Coast and inland, or Andrew in 1992 which caused $15.5 billion to Florida and Louisiana. Those damage totals are not adjusted to today's dollar value.

Since 2007, state law has allowed insurers to write policies that require homeowners to cover a larger deductible during a hurricane than in a tropical storm. For example, rather than a deductible of $500 or $1,000 for a windstorm, a homeowner's deductible in a hurricane might be as high as 5 percent of the home's value.

That means that unless the damage is more than several thousand dollars, the insurer wouldn't have to pay. Additionally, flooding to homes is underwritten and paid by the National Flood Insurance Program, managed by the Federal Emergency Management Agency.

"You look at Connecticut, it looks like a lot of that was either flood, or ...roof damage," said Chuck Watson, director of research and development at Kinetic Analysis.  "Well, the problem is, unless that roof damage from the coastal areas gets above 2 percent (of the home value), the homeowner is stuck with it. It's not an insured loss."

Some Connecticut insurance agents are handling dozens of claims, though it varies from agency to agency. Some parts of the state are still evacuated and claims won't be filed until later in the week.

"The wind damage doesn't seem to be nearly as severe as a lot of the flooding damage," James R. Berliner, president of the Professional Insurance Agents of Connecticut Inc., who has more than 30 years experience as an agent and is president of Berliner-Gelfand & Co. Inc. in Bridgeport.

"The flooding and rain runoff seems to be a lot of the damage we're seeing today," Berliner said.

Liam E. McGee, CEO of The Hartford Financial Services Group,  said Monday on CNBC's Squawk on the Street program that the storm is "well within the planning scenarios we had for catastrophe so it's very manageable for us."

"It's early," McGee said in the CNBC interview. "We tend to be ones who comment on the actual financial magnitude once we've gone through the claims process, and that'll take days and weeks. But our preliminary early signs as well as you've seen the external modeling agencies suggest it's much, much more manageable than we all had feared."

"You look at Connecticut, it looks like a lot of that was either flood, or ...roof damage," said Chuck Watson, director of research and development at Kinetic Analysis.  "Well, the problem is, unless that roof damage from the coastal areas gets above 2 percent (of the home value), the homeowner is stuck with it. It's not an insured loss."

Some Connecticut insurance agents are handling dozens of claims, though it varies from agency to agency. Some parts of the state are still evacuated and claims won't be filed until later in the week.

"The wind damage doesn't seem to be nearly as severe as a lot of the flooding damage," James R. Berliner, president of the Professional Insurance Agents of Connecticut Inc., who has more than 30 years experience as an agent and is president of Berliner-Gelfand & Co. Inc. in Bridgeport.

"The flooding and rain runoff seems to be a lot of the damage we're seeing today," Berliner said.

Between the Caribbean and the Carolinas, the insurance modeling firm Eqecat has estimated insured losses of no more than $1 billion. Another modeling company, AIR Worldwide, has forecast losses of $1.1 billion for the Caribbean alone, however. The insured losses are an undetermined fraction of the overall economic losses.

"For The Hartford, it's well within the planning scenarios we had for catastrophe so it's very manageable for us," The Hartford Financial Services Group CEO, Liam E. McGee, said Monday on CNBC's Squawk on the Street program. "It's early. We tend to be ones who comment on the actual financial magnitude once we've gone through the claims process, and that'll take days and weeks. But our preliminary early signs as well as you've seen the external modeling agencies suggest it's much, much more manageable than we all had feared."

Reuters contributed to this report.

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Matthew Sturdevant is the insurance reporter at The Hartford Courant. He grew up in East Aurora, N.Y., a small village near Buffalo. He started his journalism career in 1999 ... read more

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