Commentary: Any estimate is a guess

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The Independent Online
The oddest thing about the latest dollars 7.8bn ( pounds 3.96bn) estimate of the insurance cost of Hurricane Andrew in the US is the decimal point. At this stage, insurers would be lucky to get the big figure right by a billion either way.

The new estimate by the American Insurance Services Group puts Florida's share at dollars 7.3bn and Louisiana's at dollars 500m, and projects 685,000 claims in Florida. It is possible to take a first stab at the cost of claims to the insurance industry by comparison with the immediate aftermath of hurricanes such as Hugo, which hit South Carolina in 1989 and cost dollars 4.2bn.

But with telephones still down and many thousands of families homeless, any estimate is a guess. Lloyd's itself has been told Florida insurance costs still range between dollars 4bn and dollars 8bn. Yesterday it rubbished the latest US figures.

As for the cost to Europe, and particularly London, George Lloyd-Roberts, chairman of the Lloyd's Underwriters Non-Marine Association, said the market's share will be considerably less than for Hugo, and the effect on individual syndicates will be far less. But before names relax, there are two uncertainties to be cleared up.

First, how much of the Florida claims burden will be borne by All State and State Farm Insurance, two firms which do not reinsure. State Farm has a quarter of the Florida market. The more they

pay, the less for the rest. Second, the reinsurance market has contracted. But nobody yet knows exactly how much of the business the US has retained on its own books.

With these uncertainties, the arithmetic gives a range of dollars 250m to dollars 750m for Lloyd's costs, which is so wide as to be meaningless. There may also be an additional bill of as much as dollars 500m for pleasure craft and dollars 100m or more for oil rigs in the Gulf of Mexico.