IBAMAG.COM
TOP 10 MOST COSTLY WORLD INSURANCE LOSSES, 1970–2012* (INSURED LOSSES, 2012 DOLLARS, $ BILLIONS)
$50
2012 insured CAT losses totaled $60b; economic losses totaled $140b, according to Swiss Re
$40
Hurricane Sandy is now the 3rd costliest event in global insurance history
$30
$48.7 $38.6 $35
$25.6 $23.9 $24.6
$20 $11.1
$13.4 $13.4 $13.4
$10 $0
PRIVATE SECTOR APPROACH
*Figures do not include federally insured flood losses **Estimate based on PCS value of $18.75b as of 4/12/13 Source: Munich Re; Swiss Re; Insurance Information Institute research
US THUNDERSTORM LOSS TRENDS, 1980—JUNE 30, 2013 30 Thunderstorm losses
Insured losses ($ billion, 2012 dollars)
Is more private insurance the answer? Florida Sen. Jeff Brandes thinks so. The St Petersburg Republican is drafting legislation to lure more private insurers to the Sunshine State so that consumers have alternatives to high-priced federal flood insurance. His plan would bring new statutes to the residential surplus lines market, enabling homeowners to avoid the sticker shock coming with NFIP hikes. Oklahoma insurance commissioner John Doak agrees with a free-market approach. “File-and-use states like ours are in better shape because we enable insurance companies to compete for consumer business,” he says. “We’re dealing with more than 100,000 claims in Moore and a 16-county area, and they know not to give Oklahomans a hassle now. As more and more Americans deal with catastrophic losses on a more regular basis, insurers will have to be more competitive to remain in the marketplace.” A recent infusion of private equity into the global reinsurance market has enabled providers to absorb more catastrophic losses, Doak adds, “affording more capital in this last cycle than is true historically.” RLI Corp has a mix of commercial business in Florida, the Gulf Coast, California and the Northwest,
4 of the top 10 most expensive catastrophes in world history have occurred within the past 3 years (2010–12)
W ilm Th a ai (2 la 00 nd 5) flo od Ne s w (2 Ze 01 al 1) (2 an 01 d 1) qu ak e Ik e No (2 00 rt hr 8) id ge (19 94 at WT ) ta C ck te r An (2 ro dr 00 r ew 1) (19 Sa 92 nd ) y (2 J 0 ts a 12 un pa ) am n q i ( ua 2 Ka 01 ke, tr 1)* in * a (2 00 5)
through much of its reserves post-Sandy, Congress borrowed almost $10bn from the Treasury to shore up the program. As a result, the Biggert-Waters Act, enacted in 2012 to pull the program back from the brink, will raise premiums for NFIP customers, possibly beyond their ability to pay. But keeping rates artificially low is bad for everyone, particularly in high-risk regions, says Mike Stone, president and COO of RLI Corp, a specialty insurance company in Peoria, Illinois. “Insurance commissioners think they’re doing people a favor by holding down rates, but if regulators only approve an 80-cent increase, it’s not actuarially sound,” says Stone. “You can get lucky for a while but you can’t get lucky forever.” But when premiums go from $1,000 to $10,000 per year, “people don’t like it, and those people vote,” says Stone. “So the government chooses to subsidize, either overtly or covertly, which is why the flood program has been running at a loss.”
25 20 15
5-year running mean
Average thunderstorm losses are up sevenfold since the early 1980s. The 5-year running average loss is up sharply
Hurricanes get all the headlines, but thunderstorms are consistent producers of large-scale loss. 2008–12 are the most expensive years on record First half 2013 thunderstorm losses totaled $6.325b; the system that included the EF-5 tornado in Moore, OK, accounted for $1.575b
10 5 0
1980
1985
1990
1995
2000
2006
2010
Source: Property Claims Service, MR NatCatSERVICE
JANUARY/FEBRUARY 2014 | 43