Extreme Weather & the Insurance Industry
Hurricane Sandy wasn’t the only catastrophic natural event to hit this year. Weather extremes have emerged as a universal phenomenon this year, and it could have a significant impact on the insurance industry.
China is having its coldest winter in nearly 30 years. Eastern Russia marked a temperature of minus 50 degrees Fahrenheit, a cold so piercing that traffic lights stopped working in one of their cities. Australia is besieged by a record heat wave, and combating bush fires as a result. And Hurricane Sandy is still reeling from the damages.
The trends seem to go beyond minor climate change to include intense, some catastrophic weather events. These extreme scenarios are increasing not only severity but in frequency; two factors that could have a significant impact on the insurance market.
The weather trends are more than just record-breaking headlines. Take Britain for example. Battered by torrential rains and significant flooding, the Met Office, Britain’s weather service, declared 2012 the wettest year in England and second wettest in Britain as a whole since record-keeping began over a century ago. One pub owner closed his business for good after it flooded 11 times in two months. The floods in Britain (notably in 2007, 2009, and 2012) have totaled $6.5 billion in insurance payouts.
The U.S. saw a net underwriting loss of $34 billion and the most credit downgrades since 2005, the year Hurricane Katrina hit, according to Ceres. Claims from Hurricane Sandy are still coming through. If the extreme events continue, the market will undoubtedly harden, premiums will rise, and if the trend continues to rise in frequency and severity, the entire industry may be forced to re-evaluate.
It isn’t just the extremity but the frequency of the problems. The worsening weather poses a growing risk to insurance companies and has broad ramifications for our society and economy. Climate change and the growing rise in catastrophic extreme weather could disrupt the models insurers currently rely on.
How do you see the trend in extreme weather patterns affecting the insurance industry? We’d love to hear from you.
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Source: New York Times