Delay in 2004 hurricane repairs could hit insurers in 2005

London, 3 June: The lingering effects of last year's US hurricane season could exacerbate the cost to insurers of hurricanes hitting the country this year, according to Risk Management Solutions (RMS).

The California-based catastrophe risk modelling company calculates that a backlog in repair work, and a shortage of materials, has resulted in repair costs that are 20% to 40% above average in some southern states.

"Although construction material costs are up 5%-10% nationwide, the increase in labour costs has outpaced this by a significant margin in Florida and Alabama," says Phil LeGrone, claims research director for RMS.

"Due to the sustained escalation of labour costs in these states, if a hurricane makes landfall in the southeastern US this year, its economic impact will be as if it were the fifth event in the 2004 season." he says.

The 2004 season saw four hurricanes – Charley, Frances, Ivan and Jeanne – hit Florida and other south-eastern states within 37 days, resulting in more than two million insurance claims being made, most of which are for similar types of repairs.

A considerable amount of this work is still under way, says RMS, and prices of steel and concrete have been further boosted by a worldwide construction boom. Reconstruction work in Iraq has also had an unexpected effect, increasing global demand for plywood.

LeGrone estimates that, in order for the construction industry to catch up, and the costs of repairs to drop, "we need to go this whole summer with no [hurricane] events".

However, this is unlikely: "All the forecasts we look at say that there will be lots of activity [this season]," continues LeGrone. "So it's a question of whether they make landfall and, if so, where."