A new Best’s Commentary, “Potentially Severe Flood Losses from Hurricane Sally,” states that insured losses, as compared with events such as the ongoing wildfires in the western United States, or Hurricane Laura, will not be major, but be more of a flood event where coverage is provided mainly by the NFIP. Because of the slow pace of the hurricane, some areas in Alabama and Florida have seen more than two feet of rain. The NFIP’s reinsurance program for 2020 attaches for losses greater than $4 billion; more than two thirds of flood coverage written in Alabama is federal. The hurricane also potentially could place flood-related catastrophe bonds in its crosshairs.
Automobile damage might cause more of a direct loss event for insurers. However, most market participants are geographically diverse. Homeowners’ losses are likely to be more limited due to Hurricane Sally being more of a flood event than a wind event. However, a standard homeowner’s insurance policy will cover water damage from rain as long as the storm has “opened up” a hole in the roof.
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