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1991 Second Worst Year Ever for Disasters, Insurers Say With AM-Oakland Fire, Bjt

October 22, 1991

LOS ANGELES (AP) _ The Oakland inferno makes 1991 the second-worst year for natural disasters endured by the insurance industry, exceeded only by 1989, the year of a destructive California earthquake and the Southeast’s Hurricane Hugo.

But insurance premiums probably won’t rise as a result, one expert says.

The Oakland blaze likely will produce three or four times the insured losses of last year’s disastrous Santa Barbara fire, Roger Tompkins, California vice president for State Farm Insurance Co., said Tuesday.

″In my own mind, I’m sure it’s going to prove out to be the most expensive urban fire in modern times,″ Tompkins said. He spoke before Oakland officials increased their damage estimate to $5 billion, which would make the firestorm the costliest fire in U.S. history.

Despite three years of huge disaster claims and complaints their pockest are being picked by California’s rate-cutting Proposition 103, which voters approved last year, property and casualty insurers are expected to remain strong. That’s thanks to large reserves and load-sharing with large reinsurers like Lloyd’s of London, which insure the insurance companies.

Most U.S. insurers will be little hurt by the Oakland fire and are unlikely to raise premiums because of it, said Alan Shirek, head of the risk management department at the San Francisco office of Alexander & Alexander, an international insurance broker.

″In the personal insurance area, there’s so much competition that even this major catastrophe should affect rates in only a very marginal way,″ he said.

State Farm, California’s biggest insurer, estimated Tuesday it would pay as much as $135 million in claims from the Oakland fire, compared with $36 million from the Santa Barbara blaze.

But the company has an $18 billion ″policyholder protection fund″ of national loss reserves. Those reserves have been described as too large by industry critics.

Tompkins, State Farm’s California vice president, said disasters like the Oakland fire demonstrate why big reserves are desirable.

″When people want to challenge us on how much policyholder protection fund we have, we remind them that in cases like this, the customers want a check - they don’t want an IOU,″ he said. Tompkins said other large insurers also have more-than-adequate reserves.

Claims for catastrophic losses cost the industry $7.6 billion in 1989, when severe freeze damage in the Gulf states added to losses from the quake and hurricane. That record looks secure, said Ed Hermanson of American Insurance Services Group in New Jersey, which compiles insurance data.

The industry’s second-worst year was 1990, which at $2.8 billion was just a hair above this year - until the Oakland firestorm.

Hermanson said the fire was the 31st official catastrophe of 1991 by industry standards, meaning it caused at least $5 million in property damage and generated a significant number of claims.

Tompkins said State Farm, with about 20 percent of the business in Oakland, expects to receive 5,000 claims in all, from destroyed homes to bills for cleaning smoke-smudged drapes to hotel tabs from the displaced.

Of course, not everyone was insured.

″We’re all so vulnerable,″ said Walter Nelson Rees, co-owner of an uninsured, $18 million collection of California paintings that was to begin touring museums next week but was lost.

″I couldn’t believe it,″ Rees said. ″Why did our house burn? We had a metal roof, insulation.″