Hurricanes pose the greatest act of nature risk to the U.S. insurance industry for 2008, according to EMB, an actuarial consulting firm. With the hurricane season on the horizon, insurers must prepare for this heightened risk, EMB urges.
“We’ve seen the devastating effects of hurricanes – homes and other property completely destroyed. Insurance companies are still struggling to recover from Katrina,” said Alice Gannon, senior consultant of EMB America. “The past two years have been quieter for insurers, but meteorological research indicates that we still experienced an uptick in North Atlantic hurricane activity. This is a trend that is likely to continue for several years, so insurers must prepare themselves to withstand losses in the event of another catastrophic landfall.”
The threat of hurricanes has been at the top of the U.S. property and casualty insurance risk list since Hurricane Andrew devastated southern Florida in 1992, causing an estimated $26.5 billion in damages. Despite a drop in land-falling hurricanes in 2006 and 2007, both years experienced higher-than-average hurricane activity in the North Atlantic.
With the events surrounding Hurricane Katrina in 2005 and multiple land-falling hurricanes in 2004, U.S. insurers have experienced the implications of the increased frequency and severity of hurricanes nationwide. However, EMB cautions insurers not to be lulled into a false sense of security based on the relative calm of the past two years.
While hurricanes top the list of P&C insurance risk, other acts of nature, including tornadoes, earthquakes, winter storms, fire and hail must also be accounted for when insurers assess their pricing strategies. The recent Atlanta tornado, which caused an estimated $250 million in damage and the 2007 California wildfires, which cost insurers over $1.5 billion, have made this clear.
“Accounting for the unaccountable, as we do with these ‘acts of nature,’ is the largest obstacle facing insurers,” added Tom Hettinger, managing director of EMB America. “Companies should not be resting on their laurels when developing risk management strategies and determining prices. Instead, insurers need to factor in issues surrounding climate change and must look to incorporate long-term weather trends into their pricing.”
Source: EMB America
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