Why Insurers Are More Exposed to Cars Than Homes in Harvey's Wake

By Nicole Friedman Features Dow Jones Newswires

For many of America's personal-line insurance companies, the biggest hit from Hurricane Harvey will be from their policies on cars, not homes.

Continue Reading Below

That is because standard homeowners insurance policies cover wind damage from hurricanes but not flooding, meaning most of the residential flood damage will be uninsured or picked up by the federal government's National Flood Insurance Program. Most car insurance, on the other hand, covers flood damage.

While it could take weeks to know the full cost of the damage from Harvey, Cox Automotive estimated that 300,000 to 500,000 personal vehicles in the Houston area were severely damaged or destroyed by Harvey. Using that forecast, analysts at Keefe, Bruyette & Woods estimated that insured losses for personal and commercial car insurers could reach $4.7 billion pretax.

"It's strange to see so many people have their vehicles covered but not their homes," said Mark Hanna, spokesman for industry group Insurance Council of Texas.

Not all flooded cars are insured. While all drivers are required to carry liability insurance, they aren't obligated to have comprehensive insurance, which covers damage to vehicles including flooding.

About 15% of Texas drivers have no insurance at all, Mr. Hanna said. Of those who do, 75% have comprehensive insurance, he said. A NerdWallet analysis earlier this year said comprehensive and collision insurance in Texas cost almost $1,800 a year more than a basic liability policy on average.

Continue Reading Below

The top providers of personal auto insurance in Texas are State Farm, Berkshire Hathaway Inc.'s Geico and Allstate Corp., according to ratings agency A.M. Best.

More cars were damaged by Harvey than by superstorm Sandy, which hit the Northeast in 2012, because more residents in the Houston region own cars, said Susanna Gotsch, analyst at CCC Information Services Inc., which processes auto claims for more than 350 insurers.

Also, many drivers in Sandy's path evacuated the area, taking at least one car with them, while Houston residents largely didn't evacuate, she said.

CCC received more than 50,000 personal-auto claims related to Harvey as of Tuesday with an average loss value of $14,900, Ms. Gotsch said. Of those, 80%-85% were total losses.

The average loss was slightly higher following Sandy, she said, because the damaged vehicles in the region hit by Sandy tended to be newer and more expensive.

Towing companies have moved thousands of damaged cars to empty lots and even a racetrack in Houston for insurance companies to assess them. Eventually many will be resold at auctions or sent to junkyards.

Industry experts are looking ahead to Hurricane Irma, a Category 5 storm that could make landfall in Florida by Sunday.

Car insurers typically stop issuing new policies in an area where either a hurricane watch or a hurricane warning has been issued, said Lynne McChristian, a Florida representative for the Insurance Information Institute. That means Florida drivers in some areas who don't have comprehensive insurance probably won't be able to buy it until the storm threat passes.

In Florida, the top three personal auto insurers are Geico, State Farm and Progressive Corp., according to A.M. Best.

Write to Nicole Friedman at nicole.friedman@wsj.com

(END) Dow Jones Newswires

September 08, 2017 05:44 ET (09:44 GMT)