May 2010 Financial News

Insurers brace for 'above-average' hurricane season

May 24, 2010

WITH up to eight hurricanes and 16 named tropical storms likely to form in the Atlantic basin during the 2010 hurricane season which begins next week, local insurance companies are gearing up for a possible strain on their operations.

President of the Insurance Association of Jamaica Andrew Levy said that would be the biggest challenge if a hurricane does hit Jamaica during what forecasters say will be the busiest storm season since 2005 -- the year of Hurricane Katrina.

"Operationally, it's a big problem in terms of handling the huge volume of claims within a certain time frame," Levy told Sunday Finance last week.

"We may have in our office currently about 30 property claims that are from burglary, little fires, and things like that, when all of a sudden after a hurricane you may get 3,000 claims in five or six months, which is really a huge volume of work," Levy said in an effort to paint a picture of the daunting challenge which may arise.

He notes, however, that each individual company has their own contingency plan to deal with a heavy influx of claims.

"We do training with our claims department as to what will happen and so on because that's really where the big pressure is," said Levy.

The IAJ president added that discussions are also being held with loss adjusters -- independent claims specialists who investigate complex or contentious claims on behalf of insurance companies.

"We will talk to the loss adjusters and ensure that they have their teams ready in case we need an extra volume of adjusters to come out and do the work," he said.

On the other hand, there are no worries about any adverse impact the season may have on balance sheets.

"We reinsure so much because of that very large potential cost, so (financially), it is not a problem," said Levy.

Insurance companies purchase reinsurance to diversify exposure to catastrophic events. And according to the IAJ president, the vast majority -- over 90 per cent -- of payouts for claims after a devastating hurricane comes from reinsurers and not the insurance company.

"The financial protections are in place year-round because all of us rely very heavily on reinsurance for the catastrophe," he said, adding "Earthquakes don't have any season...that can happen anytime."

Last month, forecasters from Colorado State University said they foresee above-average storm activity for the Atlantic hurricane season. The season -- June 1 to November 30 -- is expected to produce 11 to 16 tropical storms, including six to eight hurricanes.


Source:
BY JULIAN RICHARDSON Assistant Business Co-ordinator richardsonj@jamaicaobserver.com
Jamaica Observer
Sunday, May 23, 2010

http://www.jamaicaobserver.com/business/Insurers-brace-for--above-average--hurricane-season_7635100