Posted on 04 Jan 2013 by Neilson
A lesson the insurance industry learned from Hurricane Sandy is that more information needs to be captured on flood coverage and exposure, a Munich Reinsurance executive said during a recent conference call.
Carl Hedde, Munich Re's head of risk accumulation, said the industry has been diligent in capturing information about wind, fire and earthquake exposures. But a dearth of flood information challenged catastrophe models during Sandy and the models' "flood component is not really the strongest piece - not as much research and checking has been able to be done," Hedde said.
"I think you'll see over the next few years the industry pay a lot more attention to flood exposure," Hedde said.
Hedde made his comments during a recent conference call in which Munich Re reviewed the natural catastrophes of 2012. Ernst Rauch, head of Munich Re's corporate climate center, said Sandy topped the list of the four worst cats in 2012, with insured losses estimated at $25 billion. Other U.S. events on the list were the prolonged drought, and a series of tornadoes that struck in March and April.
The only non-U.S. event on the list were two earthquakes that struck Italy in May, causing $1.6 billion in insured losses, making it the costliest event ever for the Italian insurance industry, Rauch said.
Rauch said about 91% of global insured losses in 2012 stemmed from events in North and South America, which is significantly higher than the long-term average of 65%. About 5% of the losses stemmed from Europe, with Asia less than 3%, he said. Global insured losses tallied about $65 billion in 2012, with a large chunk of that coming from Sandy.
Robert Hartwig, president of the Insurance Information Institute, said if losses from Sandy materialize, it is poised to become the third-most expensive hurricane in U.S. history based on a $19 billion mid-point estimate of the three major catastrophe modeler's projections. If Sandy has a financial impact on the high end, it could end up as the second-most expensive hurricane, supplanting Hurricane Andrew on an inflation-adjusted basis.
"When Hurricane Sandy struck ... the property/casualty insurance and reinsurance industries were very, very strong from a financial perspective, they remain that way today and remain prepared for whatever Mother Nature may have to bring in 2013," Hartwig said.
Hedde said 2012 was a relatively quiet year for U.S. tornado activity. Still, insured losses from thunderstorms exceeded $14 billion for the year, which represents the second-highest total on record, he said. Among the more expensive storms was a series of straight-line windstorms, dubbed derechos, that struck the Midwest and Middle Atlantic regions at the end of June. Those storms racked up about $2 billion in insured losses.
Hedde said a prolonged drought impacted much of the United States in 2012 and helped to trigger several wildfires. Two of them were major, destroying hundreds of homes. Fires in Fort Collins, Colo. and Colorado Springs, Colo., caused about $449.7 million in insured losses, according to the Rocky Mountain Insurance Information Association.
"2012 represents the third-highest total of burned acres," Hedde said. "Luckily, most of these fires occurred in remote areas and did not cause many instances of large losses."