September 12, 2008, 3:54 PM
Not Much to Like About Ike
By ROBERT P. HARTWIG
Without any doubt Hurricane Ike will be the most destructive hurricane to strike the United States since Hurricane Wilma caused $10 billion in insured losses arising from some one million claims in October 2005.
The track, size and strength of this storm at midday Thursday ? about 12 hours before landfall all ? put Ike on a collision course with one of the country?s largest and most industrialized metropolitan areas , Houston.
At the same time, Ike will deliver Category 4 or 5 storm surge to low-lying coastal despite the fact that the storm is expected to make landfall as a Category 2 storm.
Resident of these areas have been advised that they face ?certain death? by drowning if they stay behind.
Damage will not be limited to the coast.
Inland tropical storm warnings extend as far away as Dallas , 250 miles to the northwest.
While Ike?s winds will likely cause significant damage, the most catastrophic damage could result from storm surge.
Galveston?s sea wall is 100 years old and 16 feet high and has never been topped.
The National Hurricane Center, however, is predicting storm surge as high as 22 feet.
Coastal insurance markets in Texas were exhibiting signs of strain years before Ike formed in the eastern Atlantic nearly two weeks ago.
Growth along some stretches of the Texas coast has been explosive in recent years.
Thousands of new homes, condominiums and business have been built.
Between 2004 and year-end 2007, the value of insured coastal property in Texas increased by $155 billion, from $740 billion to $895 billion, a gain of 21 percent, according to the catastrophe modeling firm AIR Worldwide.
Eighty-five percent of the $895 billion in value is concentrated in the state?s five northernmost coastal counties, including Harris County (Houston).
In Galveston alone, there was $2.3 billion in new residential, commercial and public construction underway in 2007 , including more than 6,500 residential units, some valued at more than $1 million apiece.
In the view of most private insurers, many of the newly built structures were built in highly vulnerable locations and were very likely to be seriously damaged or destroyed by a hurricane sooner rather than later. It appears that they were right.
The majority of these high-risk coastal structures are instead insured for wind damage by the state through the Texas Windstorm Insurance Association (TWIA).
As of June 30, TWIA had $59.6 billion in total exposure for buildings and their contents, 32 percent of which is in Galveston County as is shown here.
TWIA is virtually guaranteed to see the highest losses in its history and could well exhaust its cash resources, assessment authority and reinsurance coverage.
Specifically, as of June 30, TWIA?s resources (in the sequence in which they would be used) consisted of $300 million in cash in a catastrophe reserve trust fund, a $200 million unrecoverable assessment on insurers.
$200 million in additional assessments on private insurers recoverable via premium tax credits and $1.5 billion in reinsurance.
If TWIA?s reinsurance is exhausted, an unlimited assessment can be levied on insurers which once again can be recouped via premium tax credits.
Premium taxes are effectively sales taxes that insurers pay to the state based on the volume of premiums collected.
Reinsurance is basically insurance for insurance companies.
By purchasing private reinsurance, TWIA effective taps into the claims paying capacity of insurers around the world as well as global capital markets.
TWIA?s resources going into Ike are already somewhat diminished because of Hurricane Dolly, which struck the state in July.
That storm is expected force TWIA to spend $200 million of its $300 in its trust fund and to assess insurers $100 million.
From an insurance perspective, most Galvestonians appear to understand the fact that standard homeowners insurance policies do not cover flood damage.
At least 75 percent of the county?s residents have coverage through the National Flood Insurance Program, compared with about 20 percent in coastal sections of Mississippi on the day Katrina rolled ashore in 2005.
The bottom line is that Hurricane Ike will be an expensive event cutting a broad path of destruction through Texas, Louisiana and states to the north.
Despite the landfall of Hurricane Gustav just two weeks ago, insurers have been prepositioned resources for days and are prepared both logistically and financially to pay claims.
Robert P. Hartwig is the president of the Insurance Information Institute.
Not Much to Like About Ike
By ROBERT P. HARTWIG
Without any doubt Hurricane Ike will be the most destructive hurricane to strike the United States since Hurricane Wilma caused $10 billion in insured losses arising from some one million claims in October 2005.
The track, size and strength of this storm at midday Thursday ? about 12 hours before landfall all ? put Ike on a collision course with one of the country?s largest and most industrialized metropolitan areas , Houston.
At the same time, Ike will deliver Category 4 or 5 storm surge to low-lying coastal despite the fact that the storm is expected to make landfall as a Category 2 storm.
Resident of these areas have been advised that they face ?certain death? by drowning if they stay behind.
Damage will not be limited to the coast.
Inland tropical storm warnings extend as far away as Dallas , 250 miles to the northwest.
While Ike?s winds will likely cause significant damage, the most catastrophic damage could result from storm surge.
Galveston?s sea wall is 100 years old and 16 feet high and has never been topped.
The National Hurricane Center, however, is predicting storm surge as high as 22 feet.
Coastal insurance markets in Texas were exhibiting signs of strain years before Ike formed in the eastern Atlantic nearly two weeks ago.
Growth along some stretches of the Texas coast has been explosive in recent years.
Thousands of new homes, condominiums and business have been built.
Between 2004 and year-end 2007, the value of insured coastal property in Texas increased by $155 billion, from $740 billion to $895 billion, a gain of 21 percent, according to the catastrophe modeling firm AIR Worldwide.
Eighty-five percent of the $895 billion in value is concentrated in the state?s five northernmost coastal counties, including Harris County (Houston).
In Galveston alone, there was $2.3 billion in new residential, commercial and public construction underway in 2007 , including more than 6,500 residential units, some valued at more than $1 million apiece.
In the view of most private insurers, many of the newly built structures were built in highly vulnerable locations and were very likely to be seriously damaged or destroyed by a hurricane sooner rather than later. It appears that they were right.
The majority of these high-risk coastal structures are instead insured for wind damage by the state through the Texas Windstorm Insurance Association (TWIA).
As of June 30, TWIA had $59.6 billion in total exposure for buildings and their contents, 32 percent of which is in Galveston County as is shown here.
TWIA is virtually guaranteed to see the highest losses in its history and could well exhaust its cash resources, assessment authority and reinsurance coverage.
Specifically, as of June 30, TWIA?s resources (in the sequence in which they would be used) consisted of $300 million in cash in a catastrophe reserve trust fund, a $200 million unrecoverable assessment on insurers.
$200 million in additional assessments on private insurers recoverable via premium tax credits and $1.5 billion in reinsurance.
If TWIA?s reinsurance is exhausted, an unlimited assessment can be levied on insurers which once again can be recouped via premium tax credits.
Premium taxes are effectively sales taxes that insurers pay to the state based on the volume of premiums collected.
Reinsurance is basically insurance for insurance companies.
By purchasing private reinsurance, TWIA effective taps into the claims paying capacity of insurers around the world as well as global capital markets.
TWIA?s resources going into Ike are already somewhat diminished because of Hurricane Dolly, which struck the state in July.
That storm is expected force TWIA to spend $200 million of its $300 in its trust fund and to assess insurers $100 million.
From an insurance perspective, most Galvestonians appear to understand the fact that standard homeowners insurance policies do not cover flood damage.
At least 75 percent of the county?s residents have coverage through the National Flood Insurance Program, compared with about 20 percent in coastal sections of Mississippi on the day Katrina rolled ashore in 2005.
The bottom line is that Hurricane Ike will be an expensive event cutting a broad path of destruction through Texas, Louisiana and states to the north.
Despite the landfall of Hurricane Gustav just two weeks ago, insurers have been prepositioned resources for days and are prepared both logistically and financially to pay claims.
Robert P. Hartwig is the president of the Insurance Information Institute.
