Despite 10 of the 12 costliest storms for insurers occurring within the last decade, industry experts—staring in the face of yet another predicted above-average hurricane season—say insurers are prepared.
"The industry is financial and logistically prepared to handle events several times the size of Sandy (insured losses of around $18.8 billion) or even a series of Sandy-size events," says Robert Hartwig, president of the Insurance Information Institute (I.I.I.).
"Since [Hurricane Andrew], the industry has developed sophisticated catastrophe models, carefully managed coastal exposure, increased reinsurance capacity and alternative forms of catastrophe risk transfer and worked hard to implement rates in hurricane exposed areas that accurately reflect the risk assumed."
Since 2004, the U.S. has endured Hurricane Wilma in 2005 ($11.6 billion), Hurricane Ike in 2008 ($13 billion), Hurricane Katrina ($46.5 billion) and a handful of other storms that cost around $8 billion each on average.
This year, meteorologists say that up to six major hurricanes may sweep along the Atlantic seaboard.
Al Tobin, managing principal and national property leader of Aon Risk solutions, says that the population and housing boom along U.S. coastlines creates more damage when a heavy storm hits, but maintains that the industry is better prepared than ever to withstand whatever the season may bring.
He says, "It's never been a better-capitalized marketplace as it is in 2013, with an all-time high surplus of around $600 billion.
"Quite a bit could be lost in the property-specific environment in the U.S. and we would still have a healthy industry unless worldwide events derailed the surplus. Sandy impacted numerous homeowners and families; it's not even a year later and the impact still hasn't driving price increases, meaning it won't."
Supply-Chain Risks
Beyond property losses, global supply chains present additional risks today,
Hartwig says, "The vulnerability of global corporations to supply-chain disruptions due to nature disasters of every sort is a growing problem. Record global catastrophe losses in 2011 exposed the fragility of global supply chains in the wake of the Japanese earthquake and tsunami, Thailand floods and many other events."
He adds, "Insurance is part of the solution. Other solutions that are being implemented, often in conjunction with insurance, include reducing exposure to more vulnerable areas, reducing the number of suppliers, more due diligence on the suppliers themselves and in the case of the U.S. bring more operations back on U.S. shores."
Future planning for tropical cyclones may necessitate creative thinking from insurers or reinsurers and more flexibly-written policies, says Aon's Tobin.
"We've found that a manuscript policy responded better to a large catastrophic event than insurance company stock policies, because stock policies are limited in scope while a Hurricane Irene is an atypical event."
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