Ceres Report – Futures for U.S. Property/Casualty Insurers: The Growing Costs and Risks of Extreme Weather Events
In September 2012, Ceres published a report discussing the effects that the increasing number and severity of storms are having on insurance providers, consumers and the broader economy in the United States. Drought, fires, hurricanes, flooding and winter storms are all key discussion topics. In 2011, insured damage costs totaled $44 billion, the second highest only to those from 2005 when hurricanes Katrina, Rita, and Wilma occurred, causing insured damage costs to total $60 billion (pg 10). Below is a graph from the report which represents the natural disaster trends in the United States, showing that the number of events has generally been increasing since 1980.
Increasing numbers and costs of insurance claims are affecting property/casualty insurers by decreasing earnings and investment on the insurance companies. Because of this, many insurance companies have already began climate change risk assessments. Risk Management Solutions, Inc. recently reconfigured the tropical Atlantic Storms catastrophe model. The new model shows several impacts caused by changes, including that losses in Florida, the Gulf Coast, and the Southeast will increase by 40% on average (pg 20).
According to the report, insurance companies are already passing on extra costs to the consumers, especially in areas prone to high weather damage. “Homeowners in wind-exposed areas are seeing rate increases in the range of 5% to 12% and many insurers are restricting capacity, increasing deductibles, or requiring wind mitigation constructions” (pg 21). Authors McHale and Leurig give recommendations for insurance companies, insurance sector investors/rating agencies, and insurance regulators to help calculate or counteract costs due to severe storms on insurance expenses. Some of the recommendations included building weather-proof structures, performing new risk assessments by area for a more accurate insurance rate, incorporating climate change into policies, and advocating for climate action.
For more information, view the full Report: Ceres Stormy Futures 2012
Visit the Ceres Website: www.ceres.org
Insurance Journal Article Used in Ceres Report: “Lloyd’s Details ‘Growing Impact of Climate Change’ as UN Meets”