In Wake of Natural Disasters, Insurers Brace for Big Losses

Now, as homes are repaired, fields are pumped and factories are cleaned out, the damage assessments will mount, and another measure of the impact will come into clearer focus: the cost to insurance companies.

Based on nearly two dozen interviews with farmers, business owners, analysts and government officials, private insurance companies are likely to experience at least $10 billion in insured losses this year, mostly associated with the tornadoes and the flooding along the Mississippi, based on property damage, lost inventory, business interruption and disrupted crop plantings.

Insurance industry and risk analysis experts arrived at their projections by adding median damage estimates for the worst of the tornadoes so far. The tally will rise when private-sector insurance flood and crop claims associated with the Mississippi River flooding are tacked on and hundreds of other tornadoes and severe winter weather events are factored in.

“Natural catastrophe losses in the United States are likely to be well over $10 billion by the end of 2011,” said David Smith, the senior vice president of Eqecat Inc., a catastrophe risk modeling firm. And Robert P. Hartwig, president of the Insurance Information Institute, said that just one “relatively minor” hurricane this year could push the total private insurance catastrophe losses in 2011 above the $13.6 billion paid out in 2010.

Whatever the numbers prove to be, analysts acknowledge that the geographic and economic range of damage is vast. Farmland is still submerged, meaning farmers must wait until the water fully recedes to determine whether the soil is fit to replant. Damage assessment teams are still fanning out in tornado zones, surveying the destruction.

And there is also uncertainty about what insurance policies will cover, a question recently on the mind of Austin Golding, a 25-year-old manager in his family’s barge business in Vicksburg, Miss. Like other business owners along the Mississippi, Mr. Golding took pre-emptive measures when the river started to rise, moving equipment and staff members to portable trailers on higher ground and putting the main office on blocks, a costly operation that he said saved the insured building from water damage.

“I think we are probably going to try to recoup what we spent in trying to avoid a total replacement” of the building, Mr. Golding said. He added that they would at least try to negotiate a decrease in the premium.

The Mississippi River areas that were flooded include two million to more than three million acres of farmland and pasture, said Michael Cordonnier, a consultant with the Soybean and Corn Advisor, an information service for the commodity industry. Houses, ports, casinos, hotels, grain elevators, infrastructure, fisheries and other facilities are among the sources expected to generate claims from damages.

In addition to the flooding, some of the worst tornadoes in decades have struck this year. As of Wednesday, there have been at least 518 fatalities from tornadoes in the United States, just behind the 519 in 1953, the highest number since official record-keeping started in 1950, said Gregory Carbin, a National Oceanic and Atmospheric Administration meteorologist.

Just the tornadoes that affected Alabama and neighboring states in the last week of April, and Joplin, Mo., in May, could produce insured losses of $4.5 billion to $8 billion, said Mr. Hartwig of the insurance institute. Eqecat Inc. estimated insured losses at $2 billion to $5 billion in the April week and $1 billion to $3 billion for Joplin. AIR Worldwide, a risk modeling and consulting firm, said it estimated $3.7 billion to $5.5 billion in insured losses for tornadoes and other severe weather events, including Alabama’s, in just one week: April 22 to 28.

Catastrophes are defined in the industry as any single event with $25 million or more in insured losses. The biggest catastrophe to hit the industry’s insurers was Hurricane Katrina, which generated $45 billion, adjusted for inflation, in insured losses for houses, businesses and vehicles.

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