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Houston's Auto Insurers React to Hurricane Harvey

by Precise Leads

September 25, 2017

As many as 500,000 vehicles were lost or damaged after the storm.

Hurricane Harvey didn’t just devastate Houston’s homes. It ruined its cars, as well. Matt Stillwell, who manages governmental and regulatory communications for the Insurance Council of Texas, told the New York Times that roughly 100,000 auto insurance claims had already been filed in the Houston metropolitan area as of late August, with the final tally projected to soar to 500,000. “It is looking to be a huge impact on the auto insurance market,” he said.

Cox Automotive Chief Economist Jonathan Smoke offered a similar projection. He estimated that as many as 500,000 vehicles were damaged by Hurricane Harvey in the Houston area alone, resulting in $2.7 billion to $4.9 billion in losses. Vehicle losses in Houston surpass those of Hurricanes Katrina and Sandy because the sprawling city accommodates more cars than the areas impacted by those previous storms, he added.

Other insurance experts also calculated massive losses from autos deluged by Hurricane Harvey, as well. In an interview with CNBC, Warren Buffett, whose investment firm Berkshire Hathaway owns auto insurer Geico, said that losses due to Houston-area car claims could reach 50,000. He noted that Geico currently insures 10% of auto policies in Texas, or about half a million vehicles.

Longer Waits for Houston Car Owners

In the aftermath of the storm, several auto insurers working in the Houston area have temporarily refrained from underwriting new auto policies, according to the Houston Chronicle. While insurers typically stop processing applications immediately before and after a natural disaster, some insurers are still refusing to extend coverage to new customers more than a week after the storm passed as they continue to assess the potential for future flooding in the region.

Jerry Hagins, a spokesperson for the Texas Department of Insurance, told the Houston Chronicle that most insurers waited three days before resuming normal operations following previous storms. However, he explained that Hurricane Harvey was unlike those situations. The moratoriums only apply to new coverages; policyholders with an existing contract can add a new car to the policy to replace a vehicle wrecked by the storm.

As detailed in the Houston Chronicle article, Allstate had imposed a moratorium on writing new policies in Harris County and other areas affected by the storm. State Farm had begun to offer auto insurance to new customers, but had yet to reopen online sales. Smaller auto insurance carriers have also been affected by Hurricane Harvey. American Access Casualty Co. has restarted sales in about half of the 40 Texas counties in which it operates, its largest market. Its president, Dan Cummings, expressed concern about Houston’s continued growth, however,noting that a higher population could result in more claims for flooding damage.

Higher Rates?

While it’s too early to predict how much auto insurance rates will increase in response to Hurricane Harvey, rates will probably rise for car owners located in regions ravaged by the storm, since auto insurance in general has become more expensive due to increasingly costly claims and the fallout from previous natural disasters,. For example, after Hurricane Sandy, auto insurance rates in New York rose from $1,108.64 in 2011 to $1,181.86 in 2013. A similar pattern was seen in Louisiana following Hurricane Katrina.

Since insurance rates are set by individual states, drivers outside of Houston will be spared a spike in premiums. Ted Nickel, President of the National Association of Insurance Commissioners, told USA Today that it’s unlikely that consumers are in line for higher insurance costs nationwide because of the storm. Higher reserves, he explained, will help stabilize the market. “These catastrophes are built into their pricing,” Nickel said.

Buy Comprehensive Coverage

Hurricane Harvey and other natural disasters offer lessons for insurance agents and their clients. Now might be a good time to discuss how a comprehensive auto insurance policy can offset losses from floods and other catastrophes.

Comprehensive coverage (which is not legally required in Texas) reimburses car owners for damage due to flooding. If a car is beyond repair, policyholders are entitled to replacement value minus depreciation. Liability insurance only insurers policyholders for damage inflicted on another vehicle. They cannot submit a claim for flood damage.

For your clients who drive in flood-prone areas, purchasing comprehensive auto insurance may be valuable. Having that coverage in the event of a natural disaster could get them a new vehicle and put them back on the road soon after the storm ends.

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