Posted on 11 May 2011
With the federal government shouldering the majority of claims, the Mississippi River’s surge may cause the most flood losses in the U.S. since Hurricane Katrina in 2005.
Flooding costs in states including Tennessee and Missouri may exceed losses from 2008 when Hurricane Ike struck Texas and the Cedar River crested in Iowa, according to Elizabeth Malone, insurance-industry analyst at Wunderlich Securities Inc. Katrina caused more than $16 billion in losses to the U.S. National Flood Insurance Program, which covers homes and some businesses. Ike led to about $2.6 billion in NFIP claims.
“You’d have to go back to Katrina to see something similar in terms of loss” from flooding, Malone said in a phone interview today. The industry losses from Katrina were “certainly more than this because the Mississippi flooding, for the most part, is not affecting that many urban areas.”
Claims from the flooding will add to losses suffered by insurers last month, which were the highest for an April in the U.S. since at least 2006, according to data compiled by Aon Corp. (AON), the largest insurance broker. Tornados in Alabama and wildfires in Texas contributed to more than $5 billion in U.S. industry losses last month, Aon said.
The Mississippi River is forecast to crest today at 48 feet in Memphis, Tennessee, just below a record set almost three quarters of a century ago, according to the National Weather Service. The bulge of water threatens more than 3,000 buildings in Shelby County, which includes Memphis, the local emergency management agency said yesterday.
Flooding claims from residential customers and farmers are likely to be borne by the U.S. government, said Robert Hartwig, president and chief economist of the Insurance Information Institute, a trade group. The NFIP covers residential damage and the Federal Crop Insurance Corp. covers farmers’ losses.
“While we may be seeing the largest flooding event post- Katrina, it is simply not going to produce significant privately insured losses,” said Hartwig.
“Historically these are losses that have found their way into the National Flood Insurance Program, particularly when we’re not going to see the major flooding of an urban area.”
The Standard & Poor’s 500 Property & Casualty Insurance Index advanced 0.3 percent at 4:06 p.m. in New York.
U.S. insurers typically incur the biggest catastrophe costs during the June-to-November Atlantic hurricane season, with wind damage from the storms costing private carriers more than flooding. Katrina, which struck New Orleans, caused total costs for insurers exceeding $70 billion.
The federal crop-insurance program expects to cover some losses in Missouri and doesn’t yet have an estimate of costs, said Shirley Pugh, a spokeswoman for the U.S. Department of Agriculture’s Risk Management Agency. A call to the NFIP wasn’t immediately r