Insurance rates expected to increase

By Kathy Chu, USA TODAY



Homeowners aren't the only ones likely to face higher insurance premiums in the Southeast. Drivers will probably see auto insurance rates rise because insurers face up to $1 billion in losses for cars damaged by Hurricane Katrina.



Homeowners in the affected areas of Louisiana, Mississippi and Alabama should expect to see insurance rate increases of 10% to 30%, says Donald Light, senior analyst for Celent. Auto insurance rates could climb 5% to 10%.



The insurance industry could be on the hook for up to $26 billion in damage to homes, businesses and cars, according to a revised estimate by the Insurance Information Institute. Estimates continue to be revised as the scope of Katrina's devastation becomes clearer.



In the four hurricanes that hit the South last year, about 4% of the $23 billion in losses were from damaged vehicles. "This sounds like a small percentage, but you're talking about hundreds of millions of dollars that were added in there," says Bob Hartwig, chief economist at the institute. The auto damage is likely to be similar from Katrina, he says.



Typically, insurance companies don't cover flood damage to homes. Homeowners must have government-issued flood insurance. But vehicles are covered for flood damage if policyholders have comprehensive coverage.



"There will be tens of thousands of cars with flood damage," says Tom Larsen, senior vice president of Eqecat, a risk-modeling company in Oakland. "You'll have fleets where people didn't go in to save the company cars."



Larsen says one of the problems in estimating auto losses "is that cars move."



One type of insurance loss — for loss of business — could grow for months. The longer business owners have to stay away from the stricken area, the higher the claims will be for business-interruption insurance, Hartwig says.



"Typically, when storms come through, they were very devastating, but we were able to get into our facilities within one to three days," says Grayson Hall, a senior executive vice president at AmSouth Bank, which has a large presence in the Southeast.



"It would appear that the time to get into our facilities is much longer" following Katrina.