Auto and business interruption could dominate Harvey losses

Auto insurers could be hard hit by the flooding in Texas triggered by Hurricane Harvey, according to S&P Global Ratings, which has also warned that business interruption claims could be high.

The rating agency said that losses will hit both property and auto lines, however, losses in property lines will be mitigated to a certain extent because flood is an excluded peril under most homeowners policies, and the primary coverage for that peril comes from the NFIP.

“While it might be easier to claim that structural damage to properties closer to the coast was because of wind and storm surge, as the exposure goes inland, it will be harder to make that case, and most of those losses will likely be attributable to flooding instead.

“Unlike homeowners' policies, standard automobile policies include protection from flood losses, leaving auto insurers susceptible to claims from the widespread flooding and storm surge, as experienced during Hurricane Sandy,” S&P said.

It noted that prior to that event, the general assumption had been that most automobiles would be moved out of harm's way before a hurricane were to hit, as the landfall can be reasonably forecasted several days in advance.

“But this did not happen in case of Hurricane Sandy. In Harvey's case, the evacuation was limited to highly affected regions, which leads us to believe that auto losses will be high here as well. Most of the Harvey-related flooding is being caused by rain as opposed to storm surge, as was the case in Sandy. As a result, the damage to the vehicle from fresh water could be lower than in the case of Sandy, whereas immersion in salt water is more likely to lead to a total write-off of the damaged vehicles.”

It noted that for insurers that have already been experiencing higher auto losses over the past year or two, these additional losses will just add to their woes.

S&P also said that, from a commercial lines perspective, considering the widespread and heavy flooding, insurers will likely be hit with business interruption claims, especially given the impact on Houston, which is the fourth-largest city in the US.

“It is difficult to contemplate what the final tally might be, as the forecast is for continued rain through this week. This will likely keep the water levels high and consequently affect the severity of the losses for this claim type,” it said.

“Further, flood coverage on property is just not limited to NFIP, as insurers do include flood coverage in many commercial property policies and--to a certain extent--high-end homes that might not be fully covered by NFIP. Prices for the affected region will increase for impacted lines of business as insurers look to recoup the losses over next few years. However, based on initial loss estimates, we don't expect this event to drive up prices nationally.”

Get the latest re/insurance news sent to your inbox every day -  Sign up to our free email newsletters

Today’s stories

Hurricane Harvey loss estimates vary but could reach $20bn

Insurers will bear brunt of Harvey losses; downgrades possible

NFIP could need emergency funds to cope with flood losses

Western World appoints Endurance exec as vice president

Loss-hit insurers shares plummet but brokers should benefit

Gen Re partners with UK insurtech iXledger in blockchain venture

Harvey may stabilize pricing but no hard market predicted

Cat bonds have likely escaped Harvey's wrath

White Mountains expands board of directors

Don't miss our insurtech email newsletter - sign up today