What is Mother Nature Doing to Insurance Rates?
In 2005, Hurricane Katrina devastated New Orleans and other parts of the Gulf Coast, resulting in $74 billion in insured losses.
In 2017, Hurricanes Harvey, Irma, and Maria, and two earthquakes in Mexico have caused damage far beyond that.
While the impact of Hurricane Harvey is yet to be fully and specifically determined, Texas Governor Greg Abbott estimates damages could reach up to $180 billion. That would make Harvey the costliest storm in U.S. history. On the lower end of the scale, estimates by Moody’s put the figure at around $48 billion. Hurricane Irma alone could reach several hundred billion in damage costs.
Whichever estimates turn out to be accurate, 2017 has shaped up to be one of the worst catastrophe loss years ever recorded.
Everyone Has Been Caught Off-Guard.
The extent of the damage from multiple catastrophes occurring so close together has caughteveryone, including the insurance industry, unprepared.
Governments, communities, and the industry are facing multiple areas of loss from 2017 natural disaters:
- Environmental clean up
- Crop damage
- Increased cost of construction to rebuild
- Loss of power/spoilage
- Demolition and clean up
- Supply chain interruption (fuel, water, food, labor, transportation)
- Overworked claims adjusters
- Anxiety and stress
- Lost time and opportunity
- Loss of life
Congress must also reauthorize the National Flood Insurance Program (NFIP) by September 30, 2017. If it’s allowed to lapse, it won’t be allowed to sell or renew flood insurance policies, pay existing claims, or start any mapping or management activities to create accurate assessments of risk.
That all adds up to another kind of loss that could hit all businesses: higher premiums.
Will These Disasters Deplete Insurance Market Capital and
Affect Rates?
Some insurance experts say that payouts will have a ripple effect. When insurance reserves are high, rates are typically low. But when high claims cause reserves to go down, they need to be rebuilt.
A profit warning from one of the world’s largest reinsurers is the latest sign that the death and destruction from a spate of hurricanes and earthquakes in North America are now taking a toll on the titans of global finance. German reinsurer Hannover Re S.E. said it could miss its 2017 profit target because of claims from the natural disasters, its first such warning since the 2008 financial crisis.
Reinsurers, which are in the business of insuring insurance, are experts in managing risk and only rarely get caught off-guard. Analysts say that reinsurers may need to take a fresh look at their risk models as the planet warms and storms become more intense.
Everyone Will Feel Pain From These Catastrophes, but Not Everyone has to Suffer.
Not all businesses will be directly affected by the recent disasters, but risks and higher costs will ultimately be spread out among increased premiums and higher taxes.
That’s why, in the coming year it will be critical for businesses to request an early assessment of insurance costs from their current insurance carrier(s) to help them determine how best to proceed.
Our task at MMA is to minimize these increased costs as best we can by using risk services, data/analytics, and aligning the right carriers with the right business needs.
Those businesses and servicing brokers who have anticipated and planned for risks within their control will not see the increases others may see.