Report: In North America, Severe Weather Boosts Insurance Losses

In a year when the U.S. saw several harsh weather events, global reinsurance firm Munich Re released a report Wednesday focusing on what it says is a decades-long, increasingly severe series of such events and the costlier insured losses that has accompanied them.

Over recent decades, according to the report, North America “has experienced the largest increases in weather-related loss events” of any country. Vulnerable to “every type of hazardous weather peril”—from tornadoes to wildfires to thunderstorms—the continent is particularly exposed to costly weather events because it lacks any long chain of mountain ranges running down its middle that could otherwise break up hot and cold air, according to the report.

The U.S. has itself dealt with a spate of storms in the last decade that included three hurricanes in 2005: Katrina, Rita and Wilma. Three years later, Hurricane Ike hit Texas, and insurers are still dealing with claims this year from that disaster, which cost insurers billions.

Such storms account for a good portion—89 percent—of weather-related insured losses since 1980, according to the report.

Hurricane Andrew, which raked through Florida and the Gulf Coast in 1992 and is the third-costliest hurricane in U.S. history, marked a turning point for insurers that “introduced complex risk models, while calling for stronger prevention measures,” according to a Munich Re statement.

“In order to realize a sustainable model of insurance, it is crucially important for us as risk managers to learn about this risk of change and find improved solutions for adaptation, but also mitigation,” Peter Röder, a Munich Re board member who specializes in the U.S., said in a statement. “We should prepare for the weather risk changes that lie ahead, and nowhere more so than in North America.”

But current predictive models have an especially hard time gauging the loss potential of increasingly costly wind-related events, according to the report.

Wind-driven severe weather in Alabama and Missouri struck the U.S. in back-to-back months in 2011, with the former spawning dozens of tornadoes in late April and the latter hitting Joplin, Mo., in what became the costliest event for insurers in the state’s history.

Missouri insurers had to pay out upwards of $50 million in car insurance claims alone following the storm.

“It’s fair to say that auto insurers, especially when they look back at 2011, are concerned about the increasing frequency and severity of natural disasters,” said Michael Barry, spokesman for the Insurance Information Institute (III), referring to the Alabama and Missouri events in which “auto insurers paid out many of those dollars.”

Citing numbers from ISO Property Claim Services, Barry said the first six months of 2012 incurred much lower total losses than the same period in 2011, falling from $24.4 billion to $13.8 billion. However, Barry backed

Munich Re’s findings and said the average figure of losses this decade is far higher than the previous decade.

“It looks like things are better year to year, but looking at a longer time period, overall insurance losses are definitely up,” he said.

Climate Change Encourages Further Risk Modeling

Socioeconomic developments like urban sprawl, population growth and rising cost of living are main factors in especially large insurance losses related to weather events, but those losses are bound to be compounded when considering the changing climate, according to the report.

As such, predicting loss from weather events is getting trickier; even expected events such as El Nino and La Nina can result in costly losses.

“When global warming combines with natural weather cycles,” the report states, “the risk of severe weather is intensified, and these factors will result in even larger loss costs from natural peril events than what we have seen so far.”

U.S. Weather Events Racked Up Auto Damages Last Year

The Highway Loss Data Institute (HLDI) issued a report in May showing that 2011 saw more than double the rate of vehicle claims filed for hail damage than each of the three years before that.

In 2011, there was about a 1-in-170 chance that a hail claim would be filed under a comprehensive policy. The chances in 2009 and 2010 were about 1 in 345. There were about 244,800 hail-damage claims total in 2011.

Dollar-based losses also saw a jump from hail-related vehicle claims in 2011, rising 32.7 percent to $797 million when compared with the previous year.

The Munich Re report pegged total U.S. insured property losses from thunderstorms in 2011 at a record-high $26 billion.

Several storms also struck the U.S. in 2012 and caused major losses.

Summer storms hit Ohio in June and July in what insurers said was the state’s third-costliest natural disaster in recent history, racking up $34.4 million in auto-related losses, according to the Ohio Insurance Institute. For that storm-related event, which the National Weather Service said brought baseball-sized hail to Ross County, the average auto-damage claim was about $2,200.

Also during the summer, Colorado was struck by hailstorms. Almost 70,000 total claims were filed due to the disaster, and nearly half of those claims were for vehicles; the Rocky Mountain Insurance Information Association (RMIIA) estimated that more than $85 million of the damages from those storms were vehicle-related.

The HLDI report focused on comprehensive coverage of hail claims because that type of optional coverage compensates policyholders for weather-related damage. About 75 percent of all drivers in the U.S. add comprehensive to a policy, according to Barry.

A policyholder holding coverage with a cheap car insurer may consider skipping that portion of their policy, but it may be wiser to keep it, according to Barry; in light of the recent report on increasingly severe weather across the U.S., buying comprehensive coverage is likely a smart move.

“If you talk to agents, in terms of optional coverage, comprehensive is one of the last you should give up,” he said. “It’s a comparatively small amount of your auto insurance bill but covers a lot of events, especially weather that can be unpredictable.”

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for Patch.com and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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