Winter Freeze Sparks Claims Glut With $18 Billion in Losses Seen
Crippled by a winter storm, Texas and other states are becoming a hotbed of insurance claims, with analysts expecting a hefty bill for losses.
Insured losses could hit $18 billion for the winter weather, six times the yearly average, according to Karen Clark, whose firm models catastrophes. In Texas, one of the worst-affected regions, State Farm Mutual Automobile Insurance Co., has already seen as many claims because of frozen pipes in that state as it had across the U.S. all of last year, according to a spokesman for the state’s biggest home insurer. United Services Automobile Association said it’s received more than 20,000 claims tied to the weather, and the Insurance Council of Texas said it expects hundreds of thousands of claims from vehicles, homes, businesses and renters.
Texas is reeling from days of widespread blackouts and water shortages, with millions left in the dark. Homeowners are struggling with nasty side effects, including frozen pipes and water damage. Winter storms like this one can also spur fire claims as residents seek ways to keep their homes warm, according to Brian Haden, whose Haden Claims Services works as an adjuster representing policyholders.
“But the vast majority of claims will indeed be broken-pipe claims,” Haden said.
Clark’s current estimate, which includes states beyond Texas, would place this storm ahead of Hurricane Laura, which hit the U.S. last year, and far beyond the average annual loss for winter storms of $3 billion.
“It’s probably the perfect storm in some sense, with the temperature anomaly, plus the snow, freezing rain, some wind causing power outages over a wide area and with so much over Texas, combined with the issues they have with the power grid there,” Clark, founder of Karen Clark & Co., said in a phone interview. “The third aspect is the duration of the event -- the extreme temperature anomalies lasted longer than previous cold waves.”
USAA expects the total claims to rise, and said that most were due to power failures and freezing pipes. The bulk of the total losses will likely be tied to commercial properties, since claims tend to be more expensive when a pipe bursts in a church or museum compared with a home, Clark said.
“More than half of this will be for commercial properties because commercial properties are the largest loss producers for winter-storm events,” Clark said. Compared with homes, commercial properties have flatter roofs that are more prone to collapsing under the weight of snow, she said.
The event could also spur interruption claims if businesses had to shut down because of damaged property, according to Lori Freedman, central Texas claim advisory leader for Marsh & McLennan Cos. She said claims are starting to roll in and are expected to increase in the coming days.
The failure of the Texas’s power grid could bring claims tied to energy properties such as wind turbines or gas pipelines, depending on specifics of individual policies, insurance broker Mike Hogue said. An inoperable piece of equipment because of freezing temperatures, however, might work fine after a thaw and therefore not be covered.
“Generally speaking, those property policies would be tied back to physical damage to insured property from a peril that’s not excluded,” said Hogue, managing director of the energy practice at Arthur J. Gallagher & Co. “A weather event is not an excluded peril, but you had to have damage.”