The Insurance Cost of Katrina

For liability insurers, a defence of Act of God will probably suffice to see off claims. It is the cargo, property and equipment insurers whose covers are agreed to pay out on proof of fortuitous loss who will be wincing the hardest.

Market voices suggest that of the international insurers, the TT Club has the most exposure in the Port of New Orleans where flood damage is worst and in Gulfport where a major facility for the frozen poultry trades has been wiped from the earth by a direct hit from “Katrina”. The Club has the added role of insuring many of the world’s ocean containers – no doubt the job of quantifying the loss on this front accounts for many of the 16 instructions they have so far given out in the aftermath of the worst American natural disaster in modern times.

The scale of disarray in the US Gulf area only goes to show the concentrated nature of modern port risk. It is only some 24 months ago that the worst windstorm ever seen in Korean port circles, Typhoon “Maemi, ” flattened or damaged every single crane in Busan as well as flooding thousands of containers and stranding a number of ships under constuction. This was described at the time as the largest port claim in the history of the insurance industry. It would be astounding if the broad front blasted by ‘Katrina’ will come home any cheaper than did the rather narrow progress of ‘Maemi’. This will give catastrophe and property reinsurers some hefty bills to settle in the coming 12 months – it doesn’t take all that long to quantify property loss. Also on the line will be the new Bermudan reinsurers, started up with clean sheets after 9/11 with the aim of welcoming large amounts of American catastrophe reinsurance. What part of the, say, US$ 35-50bn loss estimates being raised for insured losses will be attributed to the marine insurance and reinsurance underwriters? A year’s worth of total premium income worldwide? Say, US$500m-1bn. And how much to the ports insurers?

It is rather early to tell but US$1m might not be too wide of the mark. One thing is sure. The catastrophe reinsurers will be sitting a lot higher in the saddle this December. The bargain basements where the price of laying off risk is low have all been flooded out.