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Farmers CEO on Harvey: Many owners of flooded homes may be in for a troubling surprise

  • Uninsured losses from Hurricane Harvey could rival those seen 12 years ago after Katrina, Farmers Group's Jeff Dailey says.
  • By many estimates, Katrina caused upward of $150 billion in total economic damage with only about of third of that coming from insured losses.
  • The heavy rains from what's left of Harvey were expected to continue for several days and rivers were not expected to crest until later this week.

Uninsured losses from Hurricane Harvey in the Houston region and along the Gulf Coast of Texas could rival those seen 12 years ago after Katrina leveled New Orleans and flooded other areas in Louisiana, Mississippi and Alabama, Farmers Group CEO Jeff Dailey told CNBC on Monday.

"Unfortunately, the penetration of the National Flood [Insurance] Program is not that huge," Dailey said in a "Squawk Box" interview. "The typical homeowners policy does not cover flood."

By many estimates, Katrina caused upward of $150 billion in total economic damage with about of third of that coming from insured losses.

Harvey-related claims could put the National Flood Insurance Program in further financial straits. The NFIP owes $24.6 billion to the Treasury, most of which covered claims from Katrina in 2005, Superstorm Sandy in 2012 and severe floods in 2016, according to the Federal Emergency Management Agency, which manages the program.

"For our own book of business, maybe 1 in 4 of our homeowners actually selects the [National] Flood Insurance Program. I think you'll see an awful lot of uninsured losses," said the CEO of Farmers, a subsidiary of Switzerland-based Zurich Insurance which operates a multiline U.S. business, including home and auto.

"We're a servicing carrier for the National Flood [Insurance] Program. So our adjusters will be involved in those claims," but the bulk of the work at Farmers will be claims for damaged cars and trucks, Dailey said. "We will have a significant event for flooded vehicles as automobiles flooded will be covered by their automobile policies."

The heavy rains from what's left of Harvey were expected to continue for several days and rivers were not expected to crest until later this week. Harvey made landfall late Friday as a Category 4 hurricane in Rockport, Texas, before tracking northeast and swamping Houston with more than 20 inches of rain.

Early estimates vary, but JPMorgan predicted eventual insured losses from Harvey could be as much as $10 billion to $20 billion, making it one of the 10 most costly hurricanes to hit the U.S.

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