The insurance industry continues to be tested as catastrophic weather events have recently become more common and more severe. An uncharacteristic series of devastating natural disasters prompted 2011 to be labeled, “the year of the cat.” While many are expecting catastrophe events to return to a more normalized level in 2012, it is questionable what “normal” is. In addition, it is clear insurers should prepare for the possibility that the event frequency of 2011 may be repeated.
Until 2011, tornadoes typically were not considered one of the larger risks for the insurance industry in total. But according to Munich Re, tornadoes were the costliest type of U.S. natural disaster in 2011. It had been rare for a series of tornadoes to inflict more than $1 billion in losses, but according to Swiss Re, insured losses for tornado and hail damage in the United States reached $14 billion in 2011. The impact of 2011’s increased tornado activity prompted many insurers to accelerate their pace of rate increases, reduced limits and policy exclusions. Some insurers reconsidered what risks they were willing to write and withdrew from certain climate-change challenged markets altogether.