Insurance companies may take years to count cost of disaster

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The Independent Online

The economic cost of the tsunamis across south-east Asia will be counted in billions of dollars, but the insurance industry warned yesterday that the final bill will take months, if not years, to calculate.

The economic cost of the tsunamis across south-east Asia will be counted in billions of dollars, but the insurance industry warned yesterday that the final bill will take months, if not years, to calculate.

The timing of the disaster could not have been worse for the global insurers, who were congratulating themselves on having escaped relatively unscathed from the American hurricane season and on making close to record profits across the industry for the year as a whole. The industry says that it is too early to guess whether the economic cost of the disaster will outstrip that of any of the hurricanes, with some hoping that the developing nation status of the affected countries will mean lower pay-outs.

Although the human toll of yesterday's disaster was incomparably worse, the cheaper cost of living and lower labour costs will mean that the value of lost business is lower and rebuilding costs more modest. In addition, relatively few people in the affected areas will have life insurance cover.

The biggest insurance loss for a natural disaster was Hurricane Andrew in the US in 1992, which cost $21bn (£11bn). None of the top 10 have affected developing economies.

A spokeswoman for Lloyd's of London said: "We are closely monitoring the developing situation in Asia. We expect our exposure to be limited to holiday resorts, personal accident, travel insurance and marine risks. Communication links are currently restricted so there is limited information coming out of the affected areas. As a result, it is not possible at this time to determine the extent of our exposure. However, we will continue to monitor the situation as more information becomes available over the coming days and weeks."

Lord Levene, the chairman of Lloyd's, is holidaying on the west coast of Malaysia and watched as the waves hit the coast yesterday morning. He was not injured.

Lloyd's has tightened its rules on risk management, after losses in the early Nineties brought the market to the point of collapse. Insurers have invested heavily in "risk modelling" work, which aims to more closely match insurance policies and premiums to the likelihood of catastrophic losses. As a result, insurance premiums have risen to record levels.

But insurance companies and regulators will already be on alert for specialist insurers - for industries such as oil and gas - who may be destabilised by the costs of the disaster.

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