Hurricane Season Preparations In Full Swing

With June 1 marking the start of another busy Atlantic hurricane season, insurers are better prepared, should the big one strike, according to a consultant.

David Langdon, vice president with the consulting firm Towers Perrin’s reinsurance business out of Hartford, Conn., said that since 2005 insurers have become more prepared for a catastrophic event with better management of their concentration of risks and development of claims handling capabilities to improve efficiency.

“They will be prepared,” he said.

The soft market will have no impact on companies meeting their obligations, he noted, because there is an abundance of reinsurance capacity that is enabling insurers to pass on decreases to consumers.

Sophisticated modeling allows insurers greater control over their concentration of catastrophe risk, coupled with stringent capitalization requirements by rating agencies has put underwriters in a strong position to handle catastrophe losses.

He said another Hurricane Katrina-type of event would lead to stress for many claims management systems, but mapping technology has increased claims handling efficiency, enabling adjusters to inspect policyholder’s properties before a claim is filed.

Looking at this hurricane season, which runs from June 1 through Nov. 30, the Insurance Information Institute noted that forecasters predict an active season with above normal storms.

London-based Tropical Storm Risk said there is a 63 percent probability that hurricane activity this year will be in the top one-third of years historically. Colorado State University forecasters William Gray and Philip Klotzbach predict there will be 15 named storms, including eight hurricanes, four of which could reach major status of Category 3 or higher on the Saffir-Simpson scale.

The National Oceanic and Atmospheric Administration (NOAA) noted a 65 percent chance of an above normal hurricane season and 25 percent chance of a normal one.

The outlook, NOAA said, means a 60 to 70 percent chance of 12 to 16 named storms, including six to nine hurricanes and two to five major hurricanes of Category 3 or higher on the Saffir-Simpson scale.

An average year calls for 11 named storms, including six hurricanes, two of which reach major status, NOAA said.

The Federal Emergency Management Administration is warning the public, especially those in Florida, Texas, Louisiana, Mississippi and Alabama, that it only takes one storm to produce serious flooding and that flood insurance does not go into effect for 30 days after purchase.

In Florida, FEMA noted that 850,000 flood policies come up for renewal this year and that 95 percent of flood claims come during the hurricane season there. Texas has incurred $75 million in insured flood damage over the past three seasons. Mississippi has incurred $2.4 billion in insured flood damage over the past five years, while Louisiana suffered $408 million in damages from Hurricane Rita in 2005.

Yesterday, during a discussion on preparation for the 2008 season, sponsored by Marsh & McLennan Companies in New York, Ken Giambagno, global leader of Marsh Risk Consulting Forensic Accounting and Claims Services practice, noted that past catastrophes, such as Hurricane Katrina, have taught risk managers that their companies can be out of business if they are not prepared for an event. Those with recovery plans in place recuperate quickly and have already figured out where their vulnerabilities lie.

He added that recovery planning is not limited to a company’s direct impact from a catastrophe, but also how a catastrophe affecting a supplier’s facility needs to be planned for and alternative resources developed.

The first named tropical storm of the season has already hit on the Eastern Pacific side, where the season began May 15. Tropical Storm Alma struck Nicaragua yesterday and is crossing Honduras bringing heavy rains to the region.

The first named storm for the 2008 Atlantic Hurricane season will be Arthur.

On Saturday, Tropical Storm Arthur formed affecting the Southern Yucatan Peninsula bringing heavy rains to parts of Belize and Mexico. The storm broke-up by late Sunday night.