Insurance Quotes & Advice

To the great relief of the insurance agency, it’s been a quiet hurricane season thus far.  Hit hard by the financial crisis over the past year and with capital reserves at their lowest in years, the industry could ill afford an active hurricane season.

Weather researchers at Colorado State University noted for their annual hurricane prediction have lowered their forecast for the rest of the season to 10 tropical storms with 4 reaching hurricane status.  The National Oceanic and Atmospheric Administration had also lowered their forecasts at the start of the season.

It’s still too early for insurers to breath easy as the warm tropical waters of the Atlantic off the coast of Africa have been known to spawn multiple storms over a short period of time.  However if the industry can escape fairly unscathed this year, it would go a long way in speeding up the recovery time in rebuilding their capital levels.

Although many experts believe they still have the capital to survive even a severe season if just barely, it would do considerable damage to insurers for years to come.  If they had to make a big pay out this year, we would probably see a number of companies leave the market entirely and states would likely have to bear the burden of funding a public source of insurance if that were the case.

Florida which has taken a hard stance against premium increases, has already seen some insurers leave despite having funded a program to provide a cheaper reinsurance alternative for them.  The industry has already posted some large losses from underwriting this year and normally their investment income would more than offset this but that isn’t the case this year with the financial crisis having taking huge chunks of the value of their portfolios.

Initially weather researchers predicted an above average hurricane season for 2009 in it’s long range forecasts, however in early June, they downgraded their forecasts to below normal.  This of course good news for the insurance industry if that happens to be the case.

So far, it’s been quiet on the storm front, no “named” storm has of yet appeared but according to many weather experts that can be normal.  Last year started off slow as well but same a number of major storms appear late into the summer.

Hopefully it remains this quiet because with the condition of the insurance industry overall, they are really hoping it stays this way all season.  The property/casualty sector posted major losses in the first quarter this year and all this without any major pay out occurring.

With all the fallout from the financial crisis, ultimately the sectors capital reserves will put to the test if a big storm hits a heavily populated area in the next few months.  Insuring for hurricane damage became much more expensive after Katrina hit and while the industry would be able to survive a major storm did occur, it would leave them effectively crippled.

Some companies have sought to avoid insuring hurricane prone region entirely and this has placed an additional burden on some states to fund public insurance options to make up for the difference.  If a major storm were to occur now some of the smaller firms could be wiped out and those that survived would likely consider leaving those markets as well.

If it becomes a case where selling insurance in hurricane prone areas is not worth it at any price, the government may have to consider an option like it already does for flood coverage.  Although as we’ve already seen with national flood coverage, while it may be cheap for the customers, it isn’t for the government, the agency running the program racked up huge losses in the aftermath of Katrina.

If the private market dries up and the government is forced to enter the fray, this of course would place an additional tax burden on citizens, especially for those who live nowhere near the coast

Although this year’s hurricane forecast for the Atlantic basin calls for an average year, forecasters remain cautious due the unpredictability of weather patterns they expect this year.  As always it is important to be prepared, maybe even more so than years past.

Researchers are concerned about quickly developing tropical depressions just off the coast of the Eastern seaboard as well as in the Gulf of Mexico.  Typically hurricanes start forming off the coast of Africa, giving forecasters plenty of warning to gauge it’s strength and it’s likely track.

However, storms forming off the coast may only give a day’s warning to residents to prepare for the worst.  Although it’s a rare occurrence, we have seen tropical depressions form in the Gulf of Mexico in year’s past quickly developing into hurricane and striking the coast the following day.

Now researchers are concerned that could also happen in the warm ocean current off the East coast.  The Gulf Stream, a warm water ocean current turns sharply north after passing Florida and could become a breeding ground for a tropical depression this year.

The Northeast should be especially concerned, since a major hurricane hasn’t hit the area in over a decade and the residents there are likely not as prepared as those in the Southeastern and Gulf states.  Granted residents are usually more concerned about Nor’easters forming during the winter months than they are of a hurricane but that preparedness should translate well.