Insurance Covered Half of U.S. Disaster Costs in 2012: Swiss Re

Natural catastrophes and man-made disasters caused $186 billion in economic losses globally in 2012 and took approximately 14,000 lives, according to global insurer Swiss Re’s latest sigma study.

The United States bore the brunt of those disasters, or about $119 billion of that total economic hit. Private and public insurance picked up the tab for more than half of that damage in the United States, or $65 billion.

The large-scale weather events in the United States pushed the global total of insured weather-related claims for the year to $77 billion, the third most expensive on record. This is significantly lower than 2011, when record earthquakes and flooding in the Asia-Pacific caused historic insured losses of more than $126 billion, the highest ever recorded.

Nine of the 10 most expensive insured loss events occurred in the United States in 2012.

“The severe weather-related events … provided a reminder of the value of insurance and the vital role it plays in helping individuals, communities and businesses to recover from the devastating effects of catastrophes,” said Kurt Karl, Swiss Re’s chief economist. “However, large parts of the globe that are prone to weather extremes were not able to rely on financial relief due to low insurance penetration.”

Hurricane Sandy was the most expensive event in terms of economic and insured losses. The hurricane caused an estimated $70 billion in economic losses, making it the second-most damaging hurricane after 2005’s Katrina. Insured losses were approximately $35 billion, of which $20 billion to $25 billion were covered by the private insurance market. The remaining insured losses were incurred by the federal National Flood Insurance Program.

According to Swiss Re, Sandy’s losses stemmed from the largest windspan recorded for a North Atlantic hurricane, and from the ensuing massive storm surge that caused flooding in the densely populated East Coast. It also led to the worst power outage caused by a natural catastrophe in U.S. history. Hurricane Sandy also struck the Caribbean and stretched to Canada, adding to the loss of lives and property.

“Sandy challenged the industry with its combination of record-wind field and storm surge,” said Matthias Weber, Swiss Re’s group chief underwriting officer. “The possibility that such events could increase in frequency and strike densely populated regions such as the Northeast means extreme storm-surges need to be more thoroughly understood.”

A simulation exercise presented in Swiss Re’s sigma study shows how an increase of sea levels of 10 inches by 2050, will almost double the probability of extreme flood losses occurring. A $20 billion insured loss event, now expected once in 250 years, would be expected once in 140 years.

A rare and relatively weak series of earthquake shocks in northern Italy caused insured losses in excess of $1.6 billion, the highest recorded in the country. Total economic loss was $16 billion.

Italy has one of the lowest earthquake insurance penetration rates among industrialized countries, with high exposure to earthquake risk, Balz Grollimund, Swiss Re’s head of earthquake risk, said.