Though a calamity in ecological and economic terms, the Gulf oil spill will not be a major event for the property/casualty insurance industry, a new study concludes.
New York-based Towers Watson says insured losses will be between $4 billion and $6 billion, a fraction of the total economic loss that is currently estimated to be $35 billion. By comparison (in 2009 dollars), losses from the 9/11 attacks were about $23 billion, and losses from Hurricane Katrina tallied about $71 billion.
The companies directly involved in the spill will likely be called upon to pay claims substantially in excess of their insurance limits. For example, the owner of the drilling rig, Transocean Ltd., will likely exhaust the total of $945 million of insurance coverage it has on the drilling rig itself and the $950 million that it has liability insurance coverage. However, much like asbestos, Towers Watson notes the litigation arising from the Gulf oil spill may take decades to resolve.
Despite the insured losses, James Hole, Towers Watson managing director and a leader within the company’s reinsurance brokerage business, says he does not expect the disaster to harden the market.
“The insurance industry has been operating in a soft market for the last six years, with commercial insurance prices generally falling for five years and flat for the last year,” Hole said “Usually, a major event causes the market to turn, with prices rising in the wake of the red ink. We do not expect that Deepwater is a sufficiently significant event to turn the overall commercial insurance market.”
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