In the space of one week in August, the East Coast was hit with an earthquake felt from North Carolina to Boston and as far west as Chicago, and Hurricane Irene roared along its length, devastating habitations and businesses from the Caribbean to Vermont and beyond with wind and water. Fortunately, the earthquake did not do substantial damage; however, it provided plenty of food for thought in an area unaccustomed to feeling the ground shake underfoot.
Natural disasters are growing more frequent and severe, their collective losses taking an ever greater toll on insurers and reinsurers—$23.5 billion from tornadoes and other severe weather in the United States in the first half of 2011 alone, according to Munich Re. Globally, the total for the first six months was $265 billion.
Predictions of more frequent and more severe climate conditions seem to imply increasingly greater losses for insurers. We spoke with Steven Weisbart, senior vice president and chief economist at the Insurance Information Institute (III), to see what the future may hold.
The insurance industry is sound, says Weisbart, thanks to the “new normal”—property/casualty insurance losses amounting to more than $25 billion for catastrophes in five out of the last 11 years, including this one. “The industry as a whole is in very sound financial shape in spite of the extraordinary year as far as [catastrophic] damage is concerned,” he says. “The industry was very well-prepared.” The reason, he adds, is those last 11 years. “The worst year was 2005,” he points out, “but 2001, 2004, 2008, were all $26–27 billion. It’s hard to know what this [year] will end up being, but I would guess $25–30 billion.”
While losses from Hurricane Irene are extensive, insurance companies may not bear the brunt of it; for one thing, uninsured losses make up a huge portion of the damage and disruption, and for another, floods are not covered under most policies. Instead, the federal government’s National Flood Insurance Program (NFIP) will end up footing the bill—to its additional deficit.