Insurance experts sees loss figures rising for at least a year

A.M. Best Co. released a report last week which placed the insured losses tally from the Northridge earthquake at $5.3 billion, while a concurrent California Department of Insurance study pegged it at $4.8 billion.

The A.M. Best study of 145 insurers which write 96 percent of the property coverage in California also projected that overall losses from the Jan. 17 quake may eventually climb as high as $6.4 billion, based on patterns noted in other catastrophes where claims have been more costly than originally estimated.

The A.M. Best current figure of $5.3 billion is based on direct claims from policyholders, as well as claims expenses to insurers such as hiring adjusters and structural engineers to assess quake claims, said John Snyder, senior vice president of the property-casualty division of the Oldwick, N.J.-based insurance company rating agency.

The study by the California Department of Insurance of 280 insurance companies found total claims of 302,000 with total losses of $4.77 billion. That survey, unlike A.M. Best's, did not take into account insurers' costs of adjusting claims, said Bill Schulz, department spokesman.

Earlier this month Rahway, N.J.-based Property Claims Services, the national authority on insured losses for catastrophes, placed the insured loss figure for the Northridge quake at $4.5 billion.

The difference between the $4.5 billion and $4.77 billion figures "is believed attributable to the previous report having covered only the largest insurers, while (the department's) survey includes 280 companies reporting damage," according to a statement by the Department of Insurance.

But according to A.M. Best, the total loss estimate is expected to rise "because much of the rebuilding and repair work has just begun." The A.M. Best report noted that an increase in claims cost of 10 percent to 20 percent is possible, which would bring the total insured losses to $5.8 billion to $6.4 billion.

Quake's insurance hit

Ten insurers with largest losses from Northridge earthquake

Insurance                         Loss                No. of
company                         estimate              claims

State Farm                    $1.025 bil             103,000
Group
Allstate Ins.                 $600 mil                40,700
Group
20th Century                  $325 mil                37,500
Inds.
Fire Ins. Co.(*)              $318 mil                26,213
Truck Ins. Co.(*)             $279 mil                 4,000
Aetna Casualty                $204 mil                 1,472
Safeco Ins. Co.               $156 mil                 7,149
USAA                          $127 mil                 6,109
RLI Ins. Co.                  $120 mil                   534
Home Ins. Co.                 $105 mil                    45

* Subsidiary of Farmers Insurance Group of Cos.

Source: California Department of Insurance

A.M. Best said it will take six months to one year of insurers paying off claims until the ultimate losses from the Northridge earthquake are known.

Insurers had increased loss estimates from the earthquake by 50 percent to 100 percent in recent weeks, A.M. Best noted. The report stated, "The unique aspects of the Northridge earthquake made it especially hard to produce accurate results."

Those unique aspects include the fact that the Northridge temblor was a rare, thrust-fault quake which produces more violent up-and-down action and more damage than a slip-fault quake which causes side-to-side action.

Also, the Northridge quake occurred on a fault line which was unknown to the insurance industry and therefore insurers did not have computer modeling available to assess its damage, the A.M. Best report stated.

California Insurance Commissioner John Garamendi said in a statement that, despite the high losses to the insurance industry, insurers hit by quake losses remain in generally healthy condition.