Winter Storms Hit Cities and Businesses in the Wallet

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by: Money Morning

By David Zeiler

The unusual ferocity of winter storms this year, as well as where and how often they have struck, has put as much strain on some corporate and municipal budgets as heavy snow on a roof.

Whether it's climate change, a freak weather pattern or mere coincidence, no one denies the impact that severe weather has had on the United States in recent years - or the past several months, for that matter.

Extreme weather has affected every corner of the world. Historic floods in December and January in Queensland, Australia destroyed or damaged more than 30,000 homes. Bad weather in the United Kingdom caused insurance claims to double from last year, as colder temperatures caused pipes to burst and icier roads contributed to an increase in auto accidents

The United States has been affected, as well.

Since December, a series of harsh storms has hit the Midwest, the Northeast and, uncharacteristically, the South. Oklahoma - which normally sees very little snow - witnessed a blizzard that dropped eight inches of snow on much of the state. Days later Chicago got slammed with 20 inches, the city's third highest total on record.

The West, while spared much of the snow, has instead gotten excessive rain. Southern California received the equivalent of six months of rain in just a few weeks - as much as 21 inches in some areas - resulting in widespread flooding and numerous mudslides.

The Northeast has been hit the hardest, however. So far this winter, New York City has gotten 58 inches of snow, far above the normal 12 inches for this point of the season. And 71 inches have fallen on Boston, well over its normal accumulation of 20 inches.

And this winter is far from over. Yesterday (Wednesday) another blizzard dropped more than a foot of snow on parts of Oklahoma and Texas en route to Georgia, all of which have been hit at least once already this season.

The barrage of frozen precipitation has busted city and town budgets across the country. New York has exceeded its total-season $38 million snow-removal budget, but that's just part of the cost to the city. The New York Times estimated that the paralyzing December blizzard alone would cost the city $68 million in snow removal, additional labor costs and lost transit revenue.

Companies have fared no better, with airlines and insurance companies among the most severely hurt.

According to FlightStats and FlightAware.com, the airlines have cancelled nearly 90,000 flights since Nov. 1, resulting in a net revenue loss among the carriers of about $629 million.

The storms in December dampened fourth-quarter earnings for several major airlines, with United Continental Holdings Inc. (NYSE:UAL) reporting a revenue hit of $25 million, JetBlue Airways Corporation (NASDAQ:JBLU) $30 million, and Delta Air Lines Inc. (NYSE:DAL) $45 million. Delta also has estimated a $30 million reduction in revenue in its first quarter due to January's weather-related disruptions.

Insurance companies also face costs for which they had not prepared. According to risk modeling firm AIR Worldwide, the huge storm that struck the Midwest Feb. 1-2 could cost insurers between $790 million and $1.4 billion.

The storm posed a particular threat to roofs.

"Collapses were reported in Middletown, CT, where the third floor of an apartment building failed," AIR Worldwide said in its report. "In and around Boston, MA, there have been over 70 reports of roof collapses - mostly flat-roofed commercial structures - and more buildings have been identified as being at risk."

Some in the $500 billion U.S. property insurance industry are concerned that the increasingly unpredictable and destructive weather of recent years could become routine, which would have major implications for the industry. Insurance companies need to be able to assess future risk accurately in order to set aside enough money to cover future claims. And if claims continue to rise due to bad weather, eventually customer premiums will go up as well.

Winter storms in 2010 created the highest losses since 2003, according to a Webinar produced by reinsurer Munich Re. And last year was the third in a row that thunderstorm losses topped $9 billion.

"Some people believe [more storms are occurring] because weather patterns have changed. I happen to be in that camp," Tom Wilson, chairman and chief executive of The Allstate Corporation (NYSE:ALL) told Reuters. "I just don't think it should happen three years in a row."

Allstate is the largest publicly traded U.S. insurer of homeowners, with about 10% of the market. State Farm, a mutual insurance company owned by its policyholders, leads with just over 21%.

At least one insurance firm, The Travelers Companies Inc. (NYSE:TRV), already has endured the negative impact of rising weather-related claims. In its fourth quarter Travelers said it had $70 million in catastrophe losses - primarily from hail and wind storms in Arizona. The figure was $51 million higher than the previous year.

Disclosure: None

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