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The Battle Over Storm Surge Claims

As certain as the fact that apples are green before they turn yellow or red, there will be structures and possessions damaged this hurricane season by wave wash and storm surge.

By Ken Brownlee | Updated on August 28, 2006

As certain as the fact that apples are green before they turn yellow or red, there will be structures and possessions damaged this hurricane season by wave wash and storm surge. Those owners who did not purchase flood insurance will argue that this is windstorm damage, not flood. Bet on it. They’ll probably lose. Bet on that, too.

When the April 17, 2006, headline in National Underwriter read, “Industry Sees 2005 Profits Soar, Despite Record Catastrophe Losses,” and the following article revealed that there was a $43.5 billion net profit for the property/casualty industry, up $5 billion (12 percent) from the previous year, despite a $57.7 billion catastrophe loss, one might ask, how? The answer is simple. First, much of that catastrophic loss was reinsured, and the industry’s return on equity was 10.1 percent. That was 2005. This is 2006. As this is being written, the stock market is bumbling around, unable to reach its previous record high of around 11,700 on the Dow Jones, so it is doubtful that the Fortune 500 will earn the nearly 15 percent return on equity it made in 2006. Further, the reinsurance market took the big hit in 2005, so those rates will soar. The insurance market will tighten and property insurance rates will rise. This ain’t rocket science.

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