Why Insurers Are More Exposed to Cars Than Homes in Harvey's Wake
September 08 2017 - 5:59AM
Dow Jones News
By Nicole Friedman
For many of America's personal-line insurance companies, the
biggest hit from Hurricane Harvey will be from their policies on
cars, not homes.
That is because standard homeowners insurance policies cover
wind damage from hurricanes but not flooding, meaning most of the
residential flood damage will be uninsured or picked up by the
federal government's National Flood Insurance Program. Most car
insurance, on the other hand, covers flood damage.
While it could take weeks to know the full cost of the damage
from Harvey, Cox Automotive estimated that 300,000 to 500,000
personal vehicles in the Houston area were severely damaged or
destroyed by Harvey. Using that forecast, analysts at Keefe,
Bruyette & Woods estimated that insured losses for personal and
commercial car insurers could reach $4.7 billion pretax.
By comparison, private-sector insurers are expected to pay $1
billion to $2 billion for residential wind damage and less than
$500 million for residential flood damage, according to data
provider CoreLogic.
"It's strange to see so many people have their vehicles covered
but not their homes," said Mark Hanna, spokesman for industry group
Insurance Council of Texas.
Not all flooded cars are insured. While all drivers are required
to carry liability insurance, they aren't obligated to have
comprehensive insurance, which covers damage to vehicles including
flooding.
About 15% of Texas drivers have no insurance at all, Mr. Hanna
said. Of those who do, 75% have comprehensive insurance, he said. A
NerdWallet analysis earlier this year said comprehensive and
collision insurance in Texas cost almost $1,800 a year more than a
basic liability policy on average.
The top providers of personal auto insurance in Texas are State
Farm, Berkshire Hathaway Inc.'s Geico and Allstate Corp., according
to ratings agency A.M. Best.
More cars were damaged by Harvey than by superstorm Sandy, which
hit the Northeast in 2012, because more residents in the Houston
region own cars, said Susanna Gotsch, analyst at CCC Information
Services Inc., which processes auto claims for more than 350
insurers.
Also, many drivers in Sandy's path evacuated the area, taking at
least one car with them, while Houston residents largely didn't
evacuate, she said.
CCC received more than 50,000 personal-auto claims related to
Harvey as of Tuesday with an average loss value of $14,900, Ms.
Gotsch said. Of those, 80%-85% were total losses.
The average loss was slightly higher following Sandy, she said,
because the damaged vehicles in the region hit by Sandy tended to
be newer and more expensive.
Towing companies have moved thousands of damaged cars to empty
lots and even a racetrack in Houston for insurance companies to
assess them. Eventually many will be resold at auctions or sent to
junkyards.
Industry experts are looking ahead to Hurricane Irma, a Category
5 storm that could make landfall in Florida by Sunday.
Car insurers typically stop issuing new policies in an area
where either a hurricane watch or a hurricane warning has been
issued, said Lynne McChristian, a Florida representative for the
Insurance Information Institute. That means Florida drivers in some
areas who don't have comprehensive insurance probably won't be able
to buy it until the storm threat passes.
In Florida, the top three personal auto insurers are Geico,
State Farm and Progressive Corp., according to A.M. Best.
Write to Nicole Friedman at nicole.friedman@wsj.com
(END) Dow Jones Newswires
September 08, 2017 05:44 ET (09:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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