Tag Archives: Catastrophes

Global Insured Disaster Losses in May: $7 billion and Counting

At least $7 billion—that’s how much global disasters and severe weather are expected to cost insurers and reinsurers in May.

Aon Benfield’s latest Global Catastrophe Recap Report notes that the Fort McMurray wildfire in Alberta, Canada, will become the costliest disaster in the country’s history.

Insured losses—including physical damage and business interruption—are expected to be in excess of $3.1 billion, while total economic losses will be well into the billions of dollars.

The fire charred more than 580,000 hectares (1.43 million acres) of land and destroyed at least 10 percent of Fort McMurray, including more than 2,400 homes and other structures.

Remarkably, no direct casualties were reported from the event as it prompted the largest evacuation in the history of Alberta.

Adam Podlaha, global head of Impact Forecasting, says:

“The severity of wildfire damage in Fort McMurray is an unfortunate reminder of how significant insurable losses can be from the peril.”

And:

“Since this is just the sixth individual global wildfire to surpass the billion-dollar threshold for insurers, there is not a lot of precedent for a fire event of this magnitude.”

Check out Insurance Information Institute wildfire facts and statistics here.

Elsewhere, severe weather and flooding in Europe where the storm ‘Elvira’ swept across parts of northern Europe between late May and early June caused most damage in Germany, France, Austria, Poland and Belgium, where floods impacted many major metro regions, including Paris.

Preliminary estimates from industry associations in France (MAIF) and Germany (GDV) put the estimated combined minimum claims payouts at in excess of $2.3 billion, while overall economic damage is tentatively estimated at $4.6 billion.

May also saw no fewer than five outbreaks of severe convective storms in the United States, affecting parts of the Plains, Midwest, and Mississippi Valley. Storm-related flooding also caused major damage in parts of Texas.

Total aggregated insured losses were estimated at over $1 billion, Aon’s Impact Forecasting unit said.

Meanwhile, Cyclone Roanu brought torrential rain to Sri Lanka, eastern India, Bangladesh, Myanmar and China during May, damaging or destroying nearly 125,000 homes and structures across all five countries. Estimated reconstruction costs were put at $1.7 billion, though insured losses are substantially less due to low insurance penetration.

Even after all that, May was not done, with other notable natural hazard events around the globe, including:

—Five separate instances of flooding impacted China as aggregated economic losses topped $1.5 billion. Most of the damage was attributed to agricultural interests.

—Other major flood and landslide events in May were reported in parts of Hispaniola, Kenya, Tajikistan, Afghanistan, Rwanda, Ethiopia, India and Yemen.

—Tropical Storm Bonnie brought heavy rainfall to portions of the Carolinas and Georgia in the United States at the end of May and into June. Total economic losses were expected to be minimal.

—Earthquakes in Ecuador and China caused damages to thousands of homes and a winter weather outbreak in northern China caused damage to crops totaling $61 million.

Canadian Wildfire Underscores Risk

If ever there were an example of the real danger posed by wildfires, the Fort McMurray wildfire in Alberta, Canada is it.

Firefighters are struggling to control this massive fire that started last Sunday, is estimated to have destroyed more than 1,600 structures in Fort McMurray and has resulted in more than 80,000 evacuations.

As gccapitalideas.com reports here, record high temperatures exceeding 32 C (90 F) and extremely dry air, together with strong winds have enabled the wildfire to grow and spread rapidly.

AIR Worldwide also reports:

“With very few exceptions, catastrophic wildfires occur when three conditions are met simultaneously: dry heat maximizes the volatility of vegetation; extreme winds, which can drive the propagation of a fire through that vegetation, occur; and a fire ignites close to a moderately or heavily populated area.”

All three of these conditions have occurred in the Fort McMurray vicinity, and AIR Worldwide notes: “the wildfire that is now happening there is certainly catastrophic.”

While it is too soon to know the extent of the damage and the size of the Fort McMurray wildfire insurance loss, some early reports are helpful.

AIR Worldwide makes the important point that because of the oil industry, housing in the Fort McMurray area is more expensive than its remoteness would suggest and already it is clear that there has been a massive loss of property.

Losses arising from this fire will likely far exceed those resulting from the Slave Lake wildfire in 2011 that destroyed 522 homes and structures, it suggests. The Slave Lake wildfire cost insurers more than C$700 million at the time, according to the Insurance Bureau of Canada.

One analyst at Bank of Montreal observed that if Fort McMurray has to be completely rebuilt, insured losses could reach as high as C$9 billion ($7 billion), making this the costliest insured disaster in Canadian history.

This catastrophe is also a reminder that wildfires pose a significant risk across the United States.

For more on how to protect property from wildfire damage and to reduce the costs associated with wildfire damage check out information from the Insurance Institute for Business and Home Safety (IBHS).

Industry Partnership Looks to Green, Risk-Informed Future

As we mark Earth Day and as nearly 170 countries gather in New York to sign the Paris climate treaty, a timely new partnership between the insurance industry, the United Nations and the World Bank is set to put vulnerable economies and societies on a path to a green, risk-informed and sustainable future.

The Insurance Development Forum (IDF) aims to incorporate insurance industry risk measurement know-how into existing governmental disaster risk reduction and resilience frameworks and to build out a more sustainable and resilient global insurance market in a world facing growing natural disaster and climate risk.

With more than 90 percent of the economic costs of natural disasters in the developing world uninsured (the so-called protection gap), the IDF mission is to better understand and utilize risk measurement tools to enable governments to use their resources to target resilience and better protect people and their property.

A press release notes:

“The IDF acts as a forum to enable the optimal coordination of insurance related activities; the development of shared priorities; the mobilization of collective resources; the development of strategic and operational relationships within and between governments, industry and international institutions; and, the avoidance of unhelpful and unnecessary fragmentation of efforts and resources. These collective actions can help close the protection gap.”

The IDF will be led by a high level steering group of senior leaders from the insurance industry as well as government institutions supported by an executive secretariat housed at the International Insurance Society (IIS).

IDF chair Stephen Catlin, who is also executive deputy chairman, XL Catlin and deputy chair of the IIS, commented:

“Insurers’ risk management skills help us assess natural disaster risk and can be exported to allow governments at all levels to reduce future losses by designing in resilience into infrastructure projects; and in increasing the use of insurance as a pre-disaster economic resource to allow people to protect their families, property and assets.”

And:

“These skills can increase the utilization of insurance which will reduce the reliance on post-disaster aid and better target resources to the most important and needed humanitarian crises. Research has shown that a 1% increase in insurance penetration can reduce the disaster recovery burden on taxpayers by 22%.”

A keynote address by the UN Secretary General Ban Ki-Moon last week emphasized the critical role the insurance industry can play in building natural disaster resilience.

According to Swiss Re research, the global natural catastrophe property protection gap has risen steadily over the last 10 years, and 70% of the economic losses, or USD 1.3 trillion, were uninsured. In the emerging markets, 80 percent to 100 percent of the losses are uninsured.

Check out this Insurance Information Institute backgrounder on climate change and insurance issues here.

U.S. Dominates March Catastrophe Claims

A reminder of the impact of severe thunderstorms is evident in March catastrophe estimates, with seven separate events across the country resulting in several billion dollars of insured losses.

Aon Benfield’s March Global Catastrophe Recap noted that overall economic losses sustained to property, infrastructure and agriculture across the U.S. from the convective storm and flood damage were anticipated to approach $3.5 billion.

Insured losses incurred by public and private insurance entities were tentatively estimated at $2.0 billion. (Presumably, that number includes estimated payouts by FEMA’s National Flood Insurance Program.)

More than 1,000 individual reports of tornadoes, damaging straight-line winds and hail were recorded by the Storm Prediction Centre, while torrential rains also led to significant riverine and flash flooding in the Lower Mississippi River Valley.

Among the hardest-hit states was Texas, Aon Benfield said, where events during consecutive weeks of greater than golf ball-sized hail in the greater Dallas-Fort Worth metro region led to more than 125,000 home and auto claim filings.

The Insurance Council of Texas has put preliminary estimated insured losses in the state at more than $1.1 billion alone.

Here’s the visual on March catastrophe losses in the U.S.:

UnitedStatesMarchCatastropheLosses

Artemis blog mentions that Impact Forecasting estimates for insured or reinsured losses in the U.S. in the first-quarter of 2016 from severe and winter weather now total $4.48 billion.

“Globally the figure is $5.82 billion, again demonstrating the importance of the U.S. property catastrophe insurance and reinsurance market.”

In its must-read facts and statistics on hail, the Insurance Information Institute notes that events involving wind, hail or flood accounted for $21.4 billion in insured catastrophe losses in 2014 dollars from 1994 to 2014 (not including payouts from the National Flood Insurance Program), according to Verisk’s Property Claim Services.

Information about how to reduce hail damage to businesses and homes is available from the Insurance Institute for Business and Home Safety website here and here.

Tianjin: A Reminder of Insurance Need in Developing Countries

The explosions at the Port of Tianjin, China could ultimately become one of the largest man-made insurance loss events worldwide ever recorded, according to Swiss Re sigma.

Based on Swiss Re’s latest estimates, the total insured property loss of the Tianjin explosions is likely to be around USD 2.5 billion to USD 3.5 billion, making it the largest man-made insured loss event in Asia ever recorded.

Tianjin currently ranks as the third largest man-made insured global loss (in 2015 dollars), behind the September 11, 2001, terrorist attacks in New York, Washington and Pennsylvania and the 1988 Piper Alpha oil rig disaster.

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The Tianjin experience highlights the new potential risks facing developing countries with rapidly-developing economies, according to the latest sigma study.

2015 was the third year in a row that the biggest man-made loss globally originated from an emerging market, a reminder of the importance of insurance for developing countries, sigma says.

“The event shows the large loss potential in a country like China, with a fast-growing economy. If further evidence is needed, in 2013 a fire at a major high-tech semiconductor plant in Wuxi, also in China, caused insured losses of USD 0.9 billion.”

Financial protection through insurance is key to restoring business operations and recouping losses, sigma notes.

Accurate assessment of exposures, appropriate coverage terms and adequate pricing are likewise crucial:

“For re/insurers, they need to actively identify monitor and manage exposures in hazard zones and in areas with high asset-value concentrations.”

The complexities of the Tianjin loss have challenged re/insurers, and highlighted the accumulation of risks that can arise from a single large-scale industrial catastrophe event.

While destroyed and damaged vehicles account for most of the Tianjin losses, uncertainties remain as to the types of insurance policies involved.

Property and cargo present major risk accumulation factors in ports, especially in big centers like Tianjin, sigma observes.

The Insurance Information Institute has useful facts and statistics on man-made disasters here.

How Falling Oil Prices Affect Energy Losses

Is there a connection between falling oil prices and insurance claims?

This question is tackled by broker Marsh in a just-released research report: Can Energy Firms Break the Historical Nexus Between Oil Price Falls and Large Losses?

According to Marsh, insured losses in the global upstream energy sector reached a peak in the 1980s, shortly after the price of Brent crude oil fell from $35 to $15 per barrel.

In the late 1990s, this cycle occurred again when the price fell below $10 per barrel and again in the years following the 2008 slump, when the price fell from more than $100 to $32 per barrel.

When oil prices fall, companies face less revenue and more strain on budgets. Already, Marsh notes that oil and gas companies have been canceling projects and making staffing reductions.

But there are other potential cuts that are harder to quantify such as cuts in maintenance, health and safety measures, and employee training.

Cost-cutting decisions such as these appear to have led to increased losses in the past, according to the Marsh report:

Based on past experience, when this pullback in funding occurs, if it hasn’t already, we would expect to see an increase in losses soon after.”

Here’s the chart showing the link between oil prices and insurance claims:

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Despite falling revenues, Marsh urges energy firms to maintain their investment in risk management to reduce the potential for future major incidents and insurance claims.

Marsh also suggests that now is the time for energy firms to take advantage of lower prices in a benign insurance market to push for increased protection in uncertain times.

With the cost of insurance capital at historic lows, the opportunity clearly exists for companies to access cheap sources of capital from the insurance markets, reduce overall insurance premium costs, purchase insurance in areas that were previously omitted due to cost, and renegotiate coverage terms.”

Warren Buffett On Climate Change Risk

Climate change made a few headlines over the weekend, both in best actor Leo DiCaprio’s Oscars acceptance speech and in Warren Buffett’s annual letter to Berkshire Hathaway shareholders.

Buffett, facing calls from a proxy voter to file a report on the risks that climate change might present to Berkshire Hathaway’s insurance business, said it seems highly likely that climate change poses a major problem for the planet, but made clear that climate change is not a concern for its insurance operation:

As a citizen, you may understandably find climate change keeping you up nights. As a homeowner in a low-lying area, you may wish to consider moving. But when you are thinking only as a shareholder of a major insurer, climate change should not be on your list of worries.”

Buffett said it was understandable that the sponsor of the proxy proposal believes Berkshire is especially threatened by climate change because “we are a huge insurer, covering all sorts of risks”.

Such worries might be valid, he said, if Berkshire wrote 10 or 20-year policies at fixed prices.

But because insurance policies are customarily written for one year and repriced annually to reflect changing exposures, Buffett maintains that climate change is an opportunity for growth. In his words:

Increased possibilities of loss translate promptly into increased premiums.”

According to Buffett, up to now, climate change has not produced more frequent or more costly hurricanes or other weather-related events. As a result, U.S. super-cat rates have fallen steadily in recent years, which is why Berkshire has backed away from that business.

If super-cats become costlier and more frequent, the likely — though far from certain — effect on Berkshire’s insurance business would be to make it larger and more profitable.”

For a broader perspective on how insurers are dealing with climate change risk, check out the Insurance Information Institute’s issues update paper: Climate Change and Insurance Issues.

Alerting You to Earthquakes… and Insurance

Earthquake resilience was  in the spotlight as the Obama administration gave its support for an earthquake-alert system on the West Coast at a White House summit Tuesday.

President Obama also signed an executive order establishing a federal earthquake risk management standard which will improve the capability of federal buildings to function after a quake.

The order requires federal agencies to ensure that federal buildings are constructed or altered using earthquake-resistant design provisions in the most current building codes.

A 2015 scientific assessment from the U.S. Geological Survey shows that more than 143 million Americans could experience potentially damaging earthquakes, nearly double the prior 2006 estimate.

The ShakeAlert early warning system being developed and tested in the West would warn  residents and businesses from at least a few seconds to a few minutes before the shaking starts.

This would be  enough time to slow and stop trains and taxiing planes, and to prevent cars from entering bridges and tunnels, for example.

A common misperception among Americans  is that earthquake coverage is provided in a homeowners or business insurance policy.

However, standard homeowners, renters and business insurance policies do not cover earthquake damage. Coverage is available either in the form of an endorsement or as a separate policy.

Residential earthquake insurance in California is sold through the California Earthquake Authority, a privately funded, publicly managed organization.

Some 85 percent of U.S. homeowners said they do not have coverage for earthquake damage in response to the Insurance Information Institute’s (I.I.I.) annual Pulse Survey.

The I.I.I. Pulse results showed significant variations in the number of consumers that have earthquake insurance across the U.S.

That number was greatest in the earthquake- prone West, where 18 percent of homeowners said they had purchased separate earthquake insurance coverage.

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Information on reducing earthquake damage to homes and businesses is available on the Insurance Institute for Business and Home Safety (IBHS)  website.

The  I.I.I. also offers facts and statistics on earthquakes and tsunamis here.

Winter Weather Tops Billion Dollar Insured Cat Losses in 2015

Five of the seven individual billion-dollar insured loss natural disaster events in 2015 were recorded in the United States, according to Aon Benfield’s Annual Global Climate and Catastrophe Report.

The other two billion dollar events were recorded in Europe.

All of the events were weather-related and below the average of eight. The five events in the U.S. were equal to the 2000-2014 average.

Italy’s May 2012 earthquake was the last non-weather billion-dollar insured loss event.

The all-time record of 17 billion-dollar weather events was set in 2011.

The costliest individual insured loss event of the year was a prolonged stretch of heavy snow, freezing rain, ice, and frigid cold that impacted much of the eastern United States in February 2015. That event prompted an estimated $2.1 billion insured loss.

Other billion-dollar insured loss events in the U.S. included a severe thunderstorm outbreak in the U.S. in May and severe thunderstorms and flooding in December. Each of these events cost an estimated $1.4 billion in insured losses.

Another thunderstorm event in the U.S. in April cost $1.2 billion, while the yearlong drought in the West was another $1 billion insured loss event.

The two non-U.S. billion dollar insured loss events of 2015 consisted of the catastrophic December flooding in the UK that cost an estimated $1.3 billion, and European windstorms Mike and Niklas in March and April which resulted in an estimated insured loss of $1 billion.

CostliestInsuredCatLosses2015

Aon Benfield noted that on a global scale disasters caused insured losses of $35 billion in 2015, below the 15-year mean of $51 billion and 14 percent lower than the median ($40 billion).

This was the fourth consecutive year with declining catastrophe losses since the record-setting year in 2011.

The U.S. accounted for 60 percent of global insured disaster losses in 2015, reflecting the high rate of insurance penetration in the country, according to the report.

I.I.I. facts and statistics on U.S. catastrophes are available here.

California Wildfires: A Billion Dollar Loss

Wildfires in 2015 have already caused more damage and financial loss in the United States than in any other year since 2007.

Aon Benfield’s latest Global Catastrophe Recap report reveals that California wildfires during September destroyed more than 2,000 homes and resulted in estimated insured losses of at least $1.1 billion–the costliest since 2007.

The Valley Fire, northwest of San Francisco, and the Butte Fire, southeast of Sacramento, were the most destructive of the fires.

In its report, Aon notes that the Valley Fire left four people dead, destroyed 1,958 residential and commercial structures and damaged 93 others. It is the third-most damaging wildfire in state history.

Total economic losses were estimated beyond $1.5 billion, while preliminary insured losses were put at in excess of $925 million, Aon reports.

The Butte Fire left two people dead and destroyed 475 homes, 343 outbuildings and damaged 45 other structures. It is the seventh most damaging wildfire in state history.

Total economic losses were estimated at $450 million while preliminary estimated insured losses are in excess of $225 million.

With the peak of California wildfire season just beginning, the severity of the September events serves as a reminder of how costly the peril can be for the insurance industry, Aon Benfield said.

Elsewhere around the world, wildfires continued to pose problems in parts of Indonesia as officials declared 2015 the worst year for wildfires since 1997.

One study reported that Indonesia would endure $4 billion in direct and secondary economic losses from the fires in the regions of Sumatra and Kalimantan, Aon said.

The Insurance Information Institute (I.I.I.) provides some useful facts and statistics on wildfires here.

A recent I.I.I. media advisory notes that seven of the 10 costliest wildfires in U.S. history in terms of insured losses have occurred in California. The costliest of these was the 1991 Oakland fire which produced $2.7 billion in claims (in 2014 dollars).

For more on the California wildfires, Janet Ruiz, I.I.I.’s Northern California-based representative can be reached at janetr@iii.org or (707) 490-9375.