Ian, a storm too big for the insurance industry – economics

It’s another terrible record. At least 58 people died as a result of the hurricane in Florida alone ian died, leaving a trail of destruction last Thursday, causing storm surges and torrential rain. Most of the victims apparently drowned. An elderly couple died at home because the fans stopped working due to the power outage. At least 750,000 homes in the United States were or are still without power. In Cuba, whose western tip was hit by the storm on Wednesday, power was temporarily cut for all 11.3 million residents.

For insurers and reinsurers means: ian: You are dealing with some of the worst storm damage in American history. Similar to the hurricane disaster Katrina in the summer of 2005, which caused insured losses of $65 billion at the time, largely from the flooding in the city of New Orleans. At today’s prices, that would be $89 billion.

ian can be equally expensive, think special companies that assess the possible consequences of disasters and the actual damage on behalf of insurers. The range of estimates from these catastrophe modellers is wide, ranging from $12 billion to $80 billion, the latter number being quoted by renowned analytics firm RMS.

The latest estimate: more than $100 billion in damage

The latest estimate comes from Karen Clark & ​​Company (KCC) and puts it at $63 billion, but excludes damage to boats and ships and the state’s flood insurance program. “Total economic damage will exceed $100 billion, including uninsured property, damage to infrastructure and other cleanup and recovery costs,” KCC said.

On the one hand, the fact that hurricanes cause such great damage is due to their increasing strength, which many experts believe is a result of climate change. On the other hand, the increasing development of expensive residential buildings and hotels on properties at risk from storms plays a major role.

It is already clear that there will be a lot of controversy over whether damage was caused by the storm or by flooding. Many buildings are insured against storm damage, but not against water damage. Homeowners in the US typically protect their homes either through the state’s flood program or don’t protect their properties at all: Only 10 percent have a flood policy. Numerous lawsuits are still pending today over damage caused by the hurricane Irmawhich raged in the US in 2017.

Some insurers will likely have to file for bankruptcy

Gonna be a hurricane ian, which hit first Florida and then South Carolina, is costing insurers and reinsurers around the world and is seriously affecting insurers operating in Florida. Reinsurer Munich Re doesn’t see itself in a position to make a serious estimate yet, but analytics firm Corelogic expects many foreclosures in the industry. “A record number of homes and lots is due to the intense and destructive properties of the hurricane ian “Insurers will file for bankruptcy, homeowners will default, and in regions like Florida it will be harder to get insurance.”

The hurricane hit Florida insurers in an already difficult situation. Major US insurers such as State Farm and Allstate have slashed their offers to building owners there after high claims in previous years. Some smaller companies had to file for bankruptcy, while others sharply increased their premiums and reduced their coverage. ian will make the situation worse. The reinsurers, which in turn offer insurers protection against calamities, are also withdrawing.

Much of the private home insurance market is dominated by Florida-only providers with few opportunities to diversify risk. They have suffered particularly badly from the storm damage. The Citizens Property Insurance Corporation is one of the largest regional providers. The local companies have been reinsured through the Florida Hurricane Catastrophe Fund, but also through private providers, especially Gen Re, Lloyd’s of London, Munich Re and Swiss Re, according to an analysis by rating agency Moody’s.

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