catastrophic losses

Insurers got zapped this year. Specifically, third quarter storms accounted for 21.3 billion in insured property insurance. Insurance payed out $24.7 billion for the first nine months of 2004. This years first nine months losses is second only to 2001's first nine month losses of $26.1 billion. Majority of losses incured during 2001 is mostly do to 9/11 terrorist attacks.

This year four major hurricanes in Florida accounted for $20.5 billion-a bit more then the $20.3 billion loss caused by Hurricane Andrew in 1992. The frequency of catastrophic storms in a given 40 day time frame is very unusual and were far from the calculation of premiums.
However, there have been very few insurance insolvencies, indicatina that the market will remain strong, and be able to rebound from this storm season.

With such catastrophic losses the demand of storm insurance will likely climb as well as the premiums. Although insurance companies as a whole were able to absord such a catastrophic third quarter, the likelyhood that insurance companies will be able to absord a similar blow in the near future without some major changes in premiums is highly unlikely.



John West said...

Firms like AFLAC and many others have had to absorb many costs this year due to the frequency of storms in Florida. Premiums may have to rise for certain areas of the country, but I don't think we should all be responsible for paying Floridians every year to rebuild a house that will need to be rebuilt next year and the next after that.

Biancca said...

Insurance is a form of gambling anyway. Usually the casino (insurance companies in this case) come out ahead. This time they lost.

Anonymous said...

The demand for insurance will rise even if the premium prices increase? This seems odd to me because in class we learn that when price goes up demand usually falls. Does this mean that insurance is an inelastic good? Either way I agree with John West on this one. Just because hurricanes are happening in Florida doesn't mean that we should be paying for them.

Bryce Larkin said...

I believe the economy is going up. One of the other blogs was about spending going up. This means people either believe the economy is better or they think it. But I understand if insurance companies start charging more. They really have taken a hit and I'm not sure they could take another.

Dr. Tufte said...

-1 for 3 spelling errors in StevenPadilla2's post.

I'm not sure that insurance companies were unprepared for this hurricane season - it was unusual to have 4 hurricanes hit the same state, but not to unusual to have claims of $20B for one season (we had that not only with Andrew, but with Iniki, and Opal too).

I'm also dubious when insurance companies raise their rates in the wake of disasters like this. They are in the business of hedging themselves against disasters. I don't for a minute believe that they will have trouble absorbing this. On the other hand, I do think that they push through rate increases after disasters because they can reduce or control the public outcry by pointing out how much they just paid out.

Maudi said...

I don't feel one bit bad for the insurance companies. Many of us here in the west are covering these damages through our monthly payments to the huge insurance companies. These companies have already weighed the issues and are prepared to cover anything that mother nature throws at them. Insurance companies have do not starve that is why there are so many of them because they make a killing off of those that never have an accident.