Insurers and home insurers in particular have been hard hit by the serial hurricanes that ravished some parts of the US. It is important for us to understand, how these hurricanes will impact our future.
Allstate, the nation's second-biggest auto and home insurer was strung by third quarter losses amounting to USD 1.55 billion due to hurricane related payouts amounting to USD 3.06 billion. To avoid such volatile outflows in the future, the insurer has bought reinsurance to cover itself for future disasters. Reinsurance is insurance bought by an insurer. The insurer’s new reinsurance costs have gone up three folds to USD 600 million. Unfortunately, Allstate did not have a reinsurance cover for the regions hit by Rita or Katrina. So how will the insurer make good these increased costs and the losses that it has suffered?
To begin with, the insurer is planning to reduce its workforce by 600 to 700 through a voluntary buyout program, although it denies that this has anything to do with the recent losses. But, the story is not limited to this. To improve its financial health, the insurer will have to raise its premium levels. A similar industry wide increase is expected and it is likely to impact all of us.
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