Structural damage from Hurricane Harvey appears lighter than other storms, the chief executive officer of Allstate reported at an investor conference this week, comparing his birds-eye view from a recent flyover to 20-plus years of prior damage inspections.

Tom Wilson, who provided some details of the personal lines carrier’s reinsurance program but no specific dollar estimates of his company’s losses from hurricanes Harvey and Irma, also gave his own personal visual account of the damage he saw during a Labor Day flight over Houston.

Speaking at Barclays Global Financial Services Conference on Tuesday, Wilson said the scene he witnessed was “visually much different” than other hurricane-ravaged landscapes he’s seen in 23 years of flyovers. “Typically, you’d see a lot of blue tarps,” he said, referring to coverings that FEMA gives to homeowners with damaged roofs. After logging an hour and 15 minutes of fly time over Houston, however, Wilson spotted only three blue tarps.

“What that means is there’s very little structural damage,” he said. He noted that while hurricanes cause structural damage from wind knocking down trees, blowing out windows, and taking off roofs and shingles, they also cause water damage from ocean blasts, or storm surge, as well as rain. “In this case, there’s not really that much of the first two and it’s mostly just rain,” Wilson said, noting that losses should be less in total for insurers than past wind-heavy events.

As for Allstate’s exposure, specifically, Wilson said his company does not write any flood-exposed commercial property insurance policies. The company is a Write-Your-Own flood carrier on the residential side. “So, we adjust those claims on behalf of the federal government,” he said, noting that adjusters are working with customers to make sure they get taken care of. “But the remediation should be relatively easy,” he said. “You throw out all the wet stuff,” cut off three-to-four feet of drywall, rip out the insulation and bring in dehumidifiers. That gets the water out. “Then you put new drywall up, put a new floor down and you’re done.

“That’s different than having to put a roof on with trusses and trees falling down. It’s just much cheaper.”

Although Allstate and other personal lines carriers won’t experience the significant losses of past windstorms, tallying losses from flooded automobiles will be a formidable task. “What’s always hard to tell is whether people got their cars out of the way,” Wilson said, later drawing a comparison to Hurricane Irma. “A lot of people didn’t get out of Houston. I think in Irma, with mandatory evacuation, what we should expect to see is fewer cars as a percentage of cars out there,” he said, noting that it’s too early to provide definitive answers on either storm.

Wilson said that Allstate discloses catastrophe losses over $150 million on a monthly basis, promising that August catastrophe results will be announced on Sept. 21 and September results on Oct. 19. “I’d point out that determining catastrophe losses–it’s complicated. It takes a long time for it to really determine exactly what the remediation costs will be. So those loss estimates change significantly over the course of time,” he said.

Technology Instead of Roof-Climbing

“I’m not worried about running out of reinsurance.”

Tom Wilson, Allstate CEO

Later at the Barclays conference, during a question-and-answer session with Barclays analyst Jay Gelb, Wilson was more specific about the use of technology for adjusting Irma claims, noting that the company had captured satellite photography images of houses in the weeks leading up to Irma. “So, we have a recent before-pictures. We have our drone vendor…in the area today taking pictures of houses,” he added, without disclosing the name of the vendor. “If it’s just shingle damage, we can adjust those claims over the with a computer. Just two pictures—put them right next to each other [and] an adjuster can tell exactly what needs to be done.”

Wilson asserted that technology doesn’t just speed the claims resolutions process. “It’s cheaper too. You don’t [have] to pay someone to go climb on a roof.”

Supporting his earlier remarks about responsiveness to customers, Wilson said the insurer has resolved over 2.6 million catastrophe claims in the last five years alone. “And our help goes well beyond just the insurance claims,” he said, citing volunteer work and fund-raising efforts by employees and Allstate agency owners, as well as educational programs to teach all consumers, “not just our customers,” how to navigate the rebuilding process—to get the most out of their insurance and the government support.

No Worries About Running Out of Re Cover

Addressing investor worries, Wilson illustrated the workings of Allstate’s reinsurance program with some hypothetical storm examples. The reinsurance program, he said, includes:

• A nationwide program providing coverage for $3.9 billion of losses over a $500 million retention, but excluding losses for New Jersey and Florida property covered under separate programs.
• A Florida property reinsurance program for Allstate’s Castle Key Florida company. This reinsurance has a $20 million retention and $638 million of total limit.
• A reinsurance program for auto losses in Florida and Southeast states, covering $200 million over a $300 million retention.

Although Wilson’s example is purely hypothetical, analysts like Meyer Shields and Christopher Campbell of Keefe, Bruyette & Woods note that consensus estimates for U.S. industry losses related to Irma are converging in a $20-40 billion range, similar to Wilson’s example. In a research note published on Sept. 12, the KBW analysts also noted that Irma’s losses should be in line with a “typical” hurricane, with reinsurers bearing 50-75 percent of the total insured losses—percentages that also line up with Wilson’s hypothetical example.

In the absence of actual company loss estimates from Allstate, Barclay’s Gelb asked Wilson directly whether the company’s reinsurance protection could exhausted from Irma?

Reminding the analyst that Allstate only has about a 2 percent share of the property market, “that would have to be a pretty large property event for us to blow through $600 million of reinsurance”—an event that is 50-times $600 million ($30 billion)—Wilson said, referring to the Florida-specific property reinsurance agreement.

Separately, Karen Clark & Company estimated $18 billion in U.S. insured losses in a flash estimate released yesterday that includes property, business interruption and auto losses (excluding flood and crop).

Wilson added that Allstate’s nationwide reinsurance program has a reinstatement provision and the company can buy that by layer. “That program is very complicated, very robust. It’s working the way we thought it would work and I feel comfortable we have plenty of protection,” he stated. “I’m not worried about running out of reinsurance.”

Wilson did not review a Texas-specific example to suggest how reinsurance programs might react to Harvey losses. Unlike the hypothetical Florida example which is skewed toward property losses, for Hurricane Harvey, the KBW analysts noted that “losses should disproportionately comprise auto physical damage and commercial/industrial property losses mostly affecting primary insurers” with estimates converging on a $20-30 billion insured loss range.

Asked if Allstate has an industry number tallied for Harvey, Wilson said the company is working on its own analysis. “We don’t have a number yet [but] claim counts have started to go down in Harvey. They peaked at the end of the month”—around Aug. 28-30—but they’re relatively fewer in recent days, allowing Allstate to get a handle on the Harvey claim count. Tying dollar amounts to the claims in the next step.

In recent days, a few other property/casualty insurers have released estimates of Harvey and Irma losses and potential reinsurance recoveries:

• On Monday, Travelers estimated Harvey losses net of reinsurance recoveries in the range of $375 million to $750 million before taxes ($245 million to $490 million after taxes).
• Assurant said it expects gross losses from Hurricane Irma will exceed its retention of $125 million pre-tax but will remain within the company’s comprehensive reinsurance program.
• Heritage Insurance CEO Bruce Lucas, speaking on CNBC, said his company’s Irma gross losses are expected to fall in the $200-$300 million range, based on AIR models of the exposure. The company’s retention, he said, is just $20 million. An east coast track, he said, could have generated a billion-dollar-plus gross loss for his company. Heritage has $1.75 billion in reinsurance coverage on a first-event basis, he said.