Amid Hurricane Harvey's destructive tear through southeast Texas and southwest Louisiana, analysts agree that flooding was and will remain the biggest concern for the area.
Harvey had stalled over southeastern Texas near Houston before the center of the now-tropical storm moved back over the Gulf of Mexico. As heavy rains continue in southeastern Texas, the National Weather Service expects several more inches of rain through Aug. 31 for storm totals that could reach up to 40 to 50 inches in some areas. As flooding is not generally covered in homeowners' insurance policies, there is a large gap expected between economic loss and insured loss.
"You could draw a parallel to [Hurricane] Sandy, where the government [was responsible for] 75% of the total insured losses from Sandy because that was the portion related to flooding," Morningstar analyst Brett Horn said in an interview.
Harvey is the first major hurricane to make landfall in the U.S. since 2005. It was downgraded to a tropical storm on Aug. 26 but continues to have a huge impact. A major hurricane is defined as Category 3 or larger.
Analysts said it is too early for credible loss or claims estimates. Insurers will not come out unscathed, Horn said. Keefe Bruyette & Woods analyst Meyer Shields said personal and commercial auto and commercial property insurers are likely to be the hardest hit, as most homeowners' policies exclude flooding.
"Wind damage still implies material personal property losses, but they'll probably represent a smaller percentage of total insured losses than a 'typical' hurricane," Shields wrote in an Aug. 27 note.
AIR Worldwide, a Verisk Analytics Inc. business that provides risk modeling solutions, estimated industry insured losses will range from $1.2 billion to $2.3 billion. This estimate does not include the impact of catastrophic flooding in the area.
"As devastating as the wind damage was in Rockport and surrounding towns, flooding from Harvey's torrential rains has had the greatest impact," Eric Uhlhorn, principal scientist at AIR Worldwide, said in a press release. "Harvey has already unleashed catastrophic and unprecedented flooding in southeastern Texas, and these conditions are expected to last for several more days."
Events similar to Harvey have triggered policy coverage disputes as to whether the loss resulted from wind-driven water or from a flood or storm surge. The Texas Legislature gave consideration to the issue in 2011 with the passage of House Bill 3. Among other things, the bill directed the Texas Windstorm Insurance Association to appoint an expert panel to develop a methodology for determining the extent of damage resulting from wind versus flood or surge, but no concrete actions have been implemented to date.
There is also potential for business interruption claims from Harvey, given the expected flooding and possible prolonged power outages.
There are, however, some insurers that face more exposure to the affected areas. Morningstar's Horn noted that Allstate Corp. has significant business in Texas and will be one of the most at risk for losses. Progressive Corp., which is new to writing homeowners' insurance policies, will face its first large event, he said. Analysts have said State Farm Mutual Automobile Insurance Co., Farmers Insurance Group of Cos., United Services Automobile Association, Travelers Cos. Inc. and Chubb Ltd., among others, also face exposure.
As rains from Harvey continue, Horn said it is important now to start getting a grasp on the actual numbers in terms of losses.
"At this point, given how much of the mix is probably related to flooding, this seems more the type of event that realistically you expect every few years to hit the industry," Horn said. "It's worth pointing out that the government is going to eat a big portion of [the losses]."