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Property/casualty insurers paid a record $27.3 billion for insured property losses in 2004

U.S. property/casualty insurers paid a record $27.3 billion for insured property losses to homeowners and businesses from 22 catastrophic events last year — surpassing losses from 2001 that included the September 11 attack — according to estimates by ISO's Property Claim Services (PCS) unit.

Over 80 percent of the insured losses were from the five hurricanes that made landfall in the U.S. along the Atlantic and Gulf coasts. The last time back-to-back hurricanes struck the U.S. was in 1999, the year of hurricanes Bret, Dennis, Floyd, Irene and Lenny.

Policyholders in 42 states and Puerto Rico filed nearly 3.35 million personal and commercial property and automobile claims.

Catastrophic activity was mild in the fourth quarter with insured losses of $450 million from three events. The quarter produced slightly more than 100,000 claims from eight states. Fourth-quarter 2003 was the worst fourth quarter for insured losses — $2.64 billion, much of it stemming from the two Southern California wildland fires.

Florida suffered the highest insured losses at $18.8 billion, all from the four third-quarter hurricanes — Charley, Frances, Ivan and Jeanne — followed by Alabama at $1.8 billion, Colorado and Pennsylvania each at $715 million, and Georgia at $660 million.

The four hurricanes produced a total of 2.23 million claims from policyholders in 16 states and Puerto Rico, with Florida topping the list with 1.63 million claims.

Following is a recap of U.S. insured losses from catastrophes since 1995. While the frequency of events in the last few years is less compared with earlier years, insured losses have increased significantly.

Year Total Number
of Events
1995 34 $8.3 billion
1996 41 $7.4 billion
1997 25 $2.6 billion
1998 37 $10.1 billion
1999 27 $8.3 billion
2000 24 $4.6 billion
2001 20 $26.5 billion
2002 25 $5.9 billion
2003 21 $12.9 billion
2004 22 $27.3 billion

The cost of the average catastrophe in 2004 was $1.26 billion — twice that for other years in the past decade. That average was exceeded only once in the past 10 years — $1.33 billion in 2001, largely because of the September 11 terrorist attack.

Catastrophic damage is defined as more than $25 million in insured losses from a single event, according to the Insurance Services Office Inc. (ISO).

Weather-related losses, especially those from tornadoes, wind, and hail, are becoming more common. In 1996, the ISO issued 41 catastrophe bulletins, 30 of which — about 75 percent — were caused by tornadoes, wind, or hail, says the ISO.

In 1998 the proportion of tornado, wind, and hail catastrophes spiked to 92 percent — 34 of 37 total catastrophe bulletins issued by the ISO. The proportion of tornado and hail catastrophes fell to 83 percent in 2000 and stayed relatively level at 85 percent in 2001.

Losses from the events of September 11, 2001 involving the World Trade Center, the Pentagon, and rural Pennsylvania are now estimated at

$42.5 billion.

- Insurance Information Institute

The cost of weather catastrophes is also increasing. In 2001, insurers paid out $2.5 billion in wind losses from Tropical Storm Allison and $1.9 billion from a St. Louis hailstorm, says the ISO. Combined with the destruction of the World Trade Center, 2001 saw three of the 10 most expensive catastrophes in U.S. history, says the ISO. According to the Insurance Information Institute, losses from the events of September 11, 2001 involving the World Trade Center, the Pentagon, and rural Pennsylvania are now estimated at $42.5 billion.

So what does it mean to you if a tornado or hailstorm is classified as an insurance catastrophe?

Not much in the short term, says Don Griffin, spokesperson for the National Association of Independent Insurers. You may see more claims adjusters when the ISO declares a storm a catastrophe, because many insurers will send in extra personnel — known as catastrophe teams, or "cat" teams for short — to help speed repairs and payments, but the real consequences won't be felt until later.

"Insurance rates are determined by looking at the past to figure out the future," says Griffin. "When more money is paid out in claims, it works its way back into the system."

When insurance costs go up, so do your premiums — unless insurers earn enough with investments to cover the difference and still make a profit. "You can afford to pay out $1.10 in claims for every dollar you take in through premiums if you are making $1.20 on your investments," says Griffin.

But when the stock market goes down, insurance companies don't have this cushion. So more catastrophic tornadoes and hailstorms, combined with rising repair costs, means more money coming out of your pocket for home insurance premiums. According to the Insurance Information Institute, some areas of the country may see average home insurance premiums spike by as much as 20 percent in 2006.

Top 10 Hurricanes and Estimated Insured Loss
(adjusted to 2004 dollars):

Insured Loss
$20.8 billion
$7.5 billion
$7.1 billion
$6.4 billion
$4.6 billion
$3.7 billion
$3.4 billion
$3.1 billion
$2.6 billion
$2.2 billion

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