Katrina insurance bill could hit $US43 billion Disaster modelling company Eqecat has revised its estimate of insured damages from Hurricane Katrina to a high of $US43 billion, with claims from the offshore oil and gas industry starting to seep through. Predictions of claims for economic and insured damages have been regularly upgraded since the hurricane hit almost a month ago. Insurers expect the bill to continue to rise as residents make their way back to the swampland that was once New Orleans. Among the companies that face massive payouts from the disaster are AIG ($US1.1 billion), Berkshire Hathaway (3-5% of all Hurricane Katrina insured losses), and St Paul Travelers - the largest insurer of commercial property in the Gulf Coast ($US800 million).
Still too early to tell with Rita
While an exact figure on insured losses in the wake of Hurricane Rita has not been determined, Risk Management Solutions has estimated a likely range of $US4-7 billion, based on current information on landfall location and windspeeds.
The estimate is comprised of $US3-5 billion onshore damage resulting from wind, storm surge, and rainfall-related flood hazards and $US1-2 billion offshore platform damage and loss of production.
The preliminary estimate excludes the repeat flooding of areas of New Orleans over the weekend.
Estimates for insured losses from Rita have varied wildly. Last Friday, before the hurricane hit, Eqecat was predicting losses of $US9-18 billion, while AIR Worldwide's guesstimate was $US2-2.5 billion. Eqecat then revised its figures and quoted $US3-6 billion of insured losses.
Product liability cover is vital
Product liability is purchased based on a desire for peace of mind and financial security - as well as a healthy fear of the consequences of not insuring.
But it should be noted that just one claim against a manufacturer can put a severe financial strain on any business, and even threaten its total collapse. The costs associated with defending an unsubstantiated allegation can sometimes amount to millions of dollars.
There are other potential consequences which may follow as a result of a product liability claim, including loss of income, loss of market, punitive damages and negative publicity. These are costs to the manufacturer, but they're not generally the subject of a product liability insurance policy. The existence of product liability cover, and prompt attention to the defence or settlement of a claim, can sometimes help to minimise some of these additional costs to a business.
Product liability insurance should be an essential feature of the risk management plan of any manufacturer wishing to access world markets. There are many international buyers who will not do business with companies which either do not have, or have inadequate, product liability insurance.
The legal landscape is constantly changing, and while no one can predict what the next big product liability issue is going to be, it would be naive to think that there won't be one.
There are a variety of issues already on the radar: technology, genetically modified products, pharmaceutical and medical device industries and addictive products.
This list of issues will continue to grow as each industry seeks to take advantage of the latest innovation.
A further important consideration in respect of product liability is the aggregate liability limitation which applies to each period of insurance.
A single major claim during a period of insurance can potentially erode all coverage, leaving no protection for further injury or damage claims which may be reported later.
So a buyer of products liability insurance should also not be fooled into thinking that the minimum amount required to satisfy any contractual agreement with a customer will be sufficient.
Source: Michael Gay, Casualty Underwriting Manager, Australia, Ace Insurance
15 September 2005
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