Fortunately, the Arkansas River remains about a quarter of a mile wide during its serpentine route through the city of Tulsa. Otherwise, this story might have a different ending. It was May 3, 1999, and Mike Messer had been working in the claims department at State Farm’s Tulsa office for less than a month. Messer watched and listened to the devastating reports of the record-setting F-5 tornado in Moore, Okla., from his apartment complex, a safe 100 miles away. But within hours, the tornado was touching down again. This time in Tulsa.

“It was like what you see on TV; I was that guy,” Messer says, “I ran to the lowest level of the complex and was banging on a total stranger’s door for cover.” The stranger let Messer in. But what really saved Messer and the rest of Tulsa was the Arkansas River; it weakened the funnel cloud and bounced it over central Tulsa to avoid a second catastrophic event for the disaster-ridden state.

According to Messer, nearly the entire office staff left the next morning for Moore and left Messer, with less than 30 days experience and very little training, to man the office. “I pretty much was left holding down the fort,” he says. “I learned a lot about property damage in a very short time.”

Fourteen years later, Messer owns Mike Messer Agency-Shelter Insurance in Columbia. He relocated to Columbia and opened his agency in 2006. Prior to that, he worked in claims and as a member of Shelter’s Catastrophe Team for several years.

The recent Moore, Okla., tornados, coupled with Hurricane Sandy in the northeast, have caused more than an estimated $80 billion dollars in damage in the past seven months. The most recent storms are the latest in a long list of catastrophic events, beginning with Hurricane Katrina in 2005. The impact to insurance companies and those they insure is felt far beyond the communities touched by the actual disasters.

The prime concern for most mid-Missourians is whether the recent catastrophic events will increase their homeowner premiums. They probably will, according to local insurance agents Messer and Matt Beckett. Historical evidence also indicates there will be premium increases after a catastrophic event. But it’s not just distant tornados and hurricanes causing the increase. And there are other costs, not just premium increases, impacting our local economy.

A business is a business is a business

Insurance companies, like other companies, are striving for a profit. They have boards, shareholders or stockholders to whom they must answer. They are accountable to employees, clients, vendors and government regulatory agencies. They are not immune to steep economic downturns.

Beckett, principal of Beckett Taylor Insurance in Columbia since 2008, says: “Insurance consumers everywhere feel the impact of natural disasters like Sandy and Moore, Okla. These types of events amount to enormous losses for insurance companies and reinsurance companies.”

There are no estimates on how much local premiums may increase, but national insurance groups estimate premiums within the affected areas could increase from 15 to a whopping 200 percent, though most agree that 15 to 20 percent is more likely. The real impact won’t be known for some time, however, as premium renewals come due over the next several months.

According to the Insurance Journal, professional and trade associations within the insurance industry report that companies are now building more margin into their premiums to cover catastrophic losses.

Beckett warns that though premiums might not increase locally, your deductibles might. A flurry of recent storms in mid-Missouri, for example, may cause insurance companies to increase the deductible for specific types of storm damage.

“Losses like this not only affect insurance premium rates, but they also can affect the coverage an insurance company provides, like higher deductibles for wind and hail,” Beckett says. The increased deductible trend is common across the country, according to industry reports. Some insurance companies are moving toward charging customers a flat percentage of any loss.

Although increased costs are typically passed on to consumers, Messer says company employees can be affected as well in terms of raises, promotions or layoffs.

Beyond premiums and deductibles

Both Messer and Beckett are quick to point out other local costs can be associated with natural disasters that occur hundreds or thousands of miles away from Boone County.

“Claims elsewhere can definitely impact our local economy,” Messer says. “We may have trouble getting construction supplies and materials while Oklahoma is rebuilding.” Or the local price of construction supplies can skyrocket during a recovery effort elsewhere.

Beckett agrees. “There are indirect effects. For example, a vendor whose warehouse is destroyed in an affected area of a natural disaster may prevent our client from providing goods to his customers as a result.”

If farmland is affected, like the 2011 flood in Missouri’s Bootheel, there may be increased food prices or animal feed costs. Also, many businesses along a flooding river or in the path of a hurricane absorb a great deal of expense moving and storing equipment in preparation for the disaster — much of which is not covered by insurance.

Once an area is recovered from a natural disaster, home prices often rise as lenders require homeowner insurance and insurance rates have increased. For coastal and tornado-ridden areas, some high-risk homes are nearly uninsurable, therefore nearly unsellable, according to industry reports.

It’s the economy, stupid

Although natural disasters have been blamed for a steady rise in premium increases, the 2008 downturn in the economy is also to blame.

The Missouri Department of Insurance reports that Missouri premiums increased 5 percent since July 2011, well since the Joplin tornado. However, according to the St. Louis Post Dispatch, rates increased 14 percent in 2009 and 9 percent in 2010. Those increases were blamed on a poor return on investments rather than natural disasters.

Sure, insurance companies make money from premiums, but they also make a bulk of their money from investments. Like the rest of the country, their investments have suffered the past five years. Profits they counted on to pay off claims just simply haven’t occurred because of a lagging bond market and low interest rates. Like a teeter-totter, when one side drops, the other side rises. So if investment income is decreasing, customers’ premiums are likely increasing.

If it’s any comfort, insurance companies, like their consumers, are also paying higher premiums for their re-insurance coverage. Further, insurance companies must comply with state insurance agencies when seeking rate hikes. Simply put, the reason for increased premiums is not simple.

The government’s role

In addition to regulating rate hikes, most states, including Missouri, offer some sort of “pool insurance” for property owners who can’t find coverage elsewhere. But it is not a money-saving proposition. The Missouri Fair Access to Insurance Requirements plan offers two basic plans for homes ($200,000) or businesses ($1 million). However, the premiums are steep, the restrictions narrow and the coverage limited.

Also, the federal government has some agencies, such as the National Flood Insurance Program or the Risk Management Agency, that share in covering losses due to natural disasters.

Just recently, former FEMA Director James Lee Witt proposed developing a “national catastrophe fund” to help cover the government’s share of recovery efforts in affected areas. Contributions to the fund would be sought from high-risk states, but participation would not be mandatory. One legislator has already introduced legislation to consider such a fund. Messer is not impressed with the proposed legislation.

“This is simply a way to avoid any tax increase by disguising the tax increase as an insurance mechanism,” he says. “It would make the insurance industry bear the burden of collecting money from their customers (while making many of them angry with the rate increase). Hopefully this bill will go stale and never make it to a vote.”

The takeaway

For the government and the insurance industry, the term “catastrophic” is only applied if an event results in insured losses exceeding $25 million. Central Missouri has been relatively insulated from such catastrophes, other than the historic floods of 1993 and 1995. Still, local wallets feel the rippling effects of catastrophes occurring elsewhere, whether from violent natural disasters or economic debacles. Although premium increases are never welcome, they are preferable to suffering the widespread devastation felt in Joplin and Moore. The majority of Columbians experience minor inconveniences, small price hikes and delays in services. Our local costs are not as high as the affected areas in terms of property damage, human suffering and lives lost.

Most likely, catastrophic events will continue to occur as long as residences and businesses are built on mountain slopes subject to wildfires, coasts vulnerable to hurricanes and plains located in Tornado Alley. Thankfully, most mid-Missourians have not experienced the terror or grief of a hurricane or tornado firsthand like Messer. For him, the memory is as fresh as it was all those years ago in that apartment complex near the Arkansas River.

“I still live with it every day,” he says.