Be Prepared

Are insurers prepared for the next big disaster? According to a new report released by GE Insurance Solutions, massive growth along the nation’s coastlines has dramatically increased the potential for insured losses, even without a cyclical increase in the frequency and severity of hurricanes.

In a paper entitled, “Coastal Warning: The Rising Costs of Hurricane Frequency and Severity,” co-authors Kenneth Slack, senior underwriter at Global Property Catastrophe Reinsurance, and Larry Spoolstra, chief underwriting officer for North American and Asian Pacific Property and Casualty Reinsurance at GE Insurance Solutions, wrote, “Demographic trends in Florida and other coastal locations, as well as the likelihood of increased frequency and severity of storms, should remind the [insurance] industry of the growing exposures it will continue to face. The cost of hurricanes will rise — sooner or later surpassing even those of Hurricane Katrina.”

The authors note that the insurance industry was actually fairly well-prepared for such an intense and destructive storm, but not necessarily for a series of them.

According to a news release announcing the study, Slack and Spoolstra believe that “the industry is well capitalized and is able to withstand monster storms and earthquakes with insured price tags in the range of $60 billion to $120 billion.” However, they question whether “the industry’s capital providers would continue to maintain sufficient levels of support going forward if a heavy natural catastrophe season occurred during the same year as an unexpected loss, such as the Sept. 11, 2001, terrorist attacks.”

Meanwhile, the public appears to be aware that disasters can strike at any time and anywhere. Yet a separate study emphasizes that consumers are unlikely to prepare themselves for the next big disaster.

In a poll sponsored by the Insurance Information Network of California and Fireman’s Fund Insurance Co., Californians acknowledged that preparing for a future disaster was “common sense,” but not even financial incentives and educational programs could motivate them to do something about it.

The poll indicated they didn’t expect the government to bail them out. However, 68 percent indicated that they rely on the insurance industry to help home and business owners rebuild following a disaster.

If consumers fail to follow through in mitigating future disaster risks, then they eventually will rely on you — the agents and brokers representing the insurance industry. Don’t fall trap to ignoring disaster preparations at your company.

Sure, the West is not as prone to hurricanes as the Southeast, but insurers in Western states would be wise to assess their risks. Recent flooding in Hawaii and California, as well as levee breaks, emphasize that natural disasters can strike anywhere. Plus, don’t forget about earthquakes, tsunamis, and volcanic eruptions, too.

The GE paper wisely advises the insurance industry to be prepared and “keep a perspective on the high level of risk it faces.” In light of the increasing severity and costs of catastrophic losses, it’s the very least you can do.