Catastrophic Insurance Study

The Benefits of a Multi-State Catastrophic Risk Pool. HS Wire, March 13.   The Diva admits right up front that she is not an insurance expert, but this study seemed to be worth mentioning.  Some excerpts follow:

The study’s findings are particularly relevant in the wake of Sandy, which pelted coastal and inland regions with high winds, driving rains, heavy snow and flooding along the Eastern Seaboard. Kinetic Analysis projects that that storm’s direct impacts could run as high as $25 billion, excluding the New York City underground infrastructure.

Sandy has renewed calls for a federal catastrophe plan that creates risk pools across larger geographic areas — along with objections that doing so will force low-risk areas to subsidize high-risk states.

The study found, however, that the opposite to be true. As geographic diversity increased, funding levels for sustainable catastrophic risk pools decreased relative to premiums, actually resulting in savings for both low and high risk areas.

“If subsidies are created in this setting, it is due to incorrect risk pricing rather than the risk itself,” said FSU’s Dumm. “Our analysis found that each state derives benefits from geographic diversification regardless of risk ranking. In fact, failure to diversify catastrophic wind risk may impose its own set of costs in the form of lost diversification benefits that exist precisely where they are needed, for less frequent and more severe catastrophic events.”

NJ Plans Mediation of Disputes Between Consumers and Insurance Companies

One of the impediments to recovery often is due to disputes between homeowners or business owners and insurance companies.  We saw that after H. Katrina and we saw it more recently in Christchurch, NZ.  This artiele explains a pending action by Gov Christie of N.Y.  NJ Plans to Set up Mediation of Disputes with Insurance Companies . Some excerpts:

New Jersey’s Department of Banking and Insurance is setting up a mediation program to give consumers the chance to settle insurance disputes without the time and expense of litigation. The department currently is seeking proposals from companies to provide mediation services, and interested firms have until March 7 to submit a bid.

The program would sit an experienced mediator between policyholders and their insurance companies in order to review the case and assist in settlement discussions. Similar efforts were undertaken with success in Gulf Coast states after hurricanes Katrina and Rita slammed the region in 2005, Kenneth Kobylowski, commissioner of the insurance department, said yesterday.

Funding the Response and Recovery from H. Sandy – two mechanisms

Recent postings have focused on the pending Congressional actions for supplemental funding for relief and recovery from H. Sandy.  The prospect looms for a major debate/battle in the Congress.  Hopefully, some discussion of future threats, risks, vulnerabilities will occur and it will not just be another example of the political warfare that Congress has been displaying of late.

There is a second component of the funding that has not been getting much attention – the role and function of the National Flood Insurance Program (NFIP). I am no expert on the details of that program, but a recent NY Times article caught my attention: Flood Insurance, Already Fragile, Faces New Stress, NY Times, Nov. 12, 2012.  One brief excerpt:

The federal government’s flood insurance program, which fell $18 billion into debt after Hurricane Katrina, is once again at risk of running out of money as the daunting reconstruction from Hurricane Sandy gets under way. de it clear to me just how important and how dysfunctional the program is currently.

Since the problems and issues are numerous and complex, please read the full article to understand how important this funding source is and could be.

Thanks to Tom Antush for calling this article to my attention.

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The High Cost of Rebuilding in High Flood Risk Areas

The high cost of  insurance for reconstruction is the theme of this article in the NYTimes, Nov. 28, 2012: Cost of Coastal Living to Climb Under New Flood Rules. (Also titled Post-Storm Cost May Force Many from Coast Life.) Some excerpts follow:

New York and New Jersey residents, just coming to grips with the enormous costs of repairing homes damaged or destroyed by Hurricane Sandy, will soon face another financial blow: soaring flood insurance rates and heightened standards for rebuilding that threaten to make seaside living, once and for all, a luxury only the wealthy can afford.

Homeowners in storm-damaged coastal areas who had flood insurance — and many more who did not, but will now be required to — will face premium increases of as much as 20 percent or 25 percent per year beginning in January, under legislation enacted in July to shore up the debt-ridden National Flood Insurance Program. The yearly increases will add hundreds, even thousands, of dollars to homeowners’ annual bills.

The higher premiums, coupled with expensive requirements for homes being rebuilt within newly mapped flood hazard zones, which will take into account the storm’s vast reach, pose a serious threat to middle-class and lower-income enclaves.

The heightened financial pressure has emerged as an unintended consequence of efforts to stop the government subsidization of risk that has encouraged so many to build and rebuild along coasts increasingly vulnerable to extreme weather. Supporters of the effort acknowledged that it would squeeze lower-income residents but said it was vital for the insurance program to reflect the risk of living along the shore.

“The irony is, if we allowed market forces to dictate at the coast, a lot of the development in the wrong places would never have gotten built,” said Jeffrey Tittel, director of the Sierra Club’s chapter in New Jersey. “But we didn’t. We subsidized that development with low insurance rates for decades. And we can’t afford to keep doing that.

[Thanks for Jude Colle for calling it to my attention.]

More Dimensions of the H. Sandy Disaster

Insurance Industry – could it do more to prevent disasters?

You might think Wired magazine is an unlikely place to deal with disaster mitigation, but they did offer this article: How Insurers Can Foil the Next Hurricane Sandy, on October 31. 

Weather Forecasting: – why is the U.S. falling behind the Europeans?

Why American Has Fallen Behind the World in Storm Forecasting; October 31.

Americans should take great pride in the fact that computer weather modeling was invented here, along with weather satellites and other scientific and technological marvels. Sadly, the skill of our computer models fell substantially behind that of other nations some decades ago, and by many measures we are in third or even fourth place today. The overall star performer is a computer model operated by a consortium of European nations; that model accurately predicted Sandy’s track and evolution well before U.S. models caught up later last week.

Why have we fallen so far behind? While there are many nuances to this answer, the basic reason is a failure of political will. The Europeans spend somewhat more on numerical weather prediction and run their models on larger and faster computers; they have also been more effective that we have in involving academic researchers in the development and improvement of their models. They appear to recognize that the monetary savings of skillful weather forecasts far outstrip what governments spend on the weather enterprise.

Is the Insurance Industry Really Aiding Disaster Victims?

April 2, 2006 Tornado Outbreak, O'Fallon, Illi...

Image via Wikipedia

A new report from the Consumer Federation of America is titled: The Insurance Industry’s Incredible Disappearing Weather Catastrophic Risk: How Insurers have Shifted Risk and Costs Associated with Weather Catastrophes to Consumers and Taxpayers

A summary of the report, written by the Federation, is available. The  full text of the report (19 pages) is available here.

I do not feel competent to critically review this report, but I think it warrants serious attention from those who have the expertise.  Your assessment is invited.

Thanks to G.W. Schulz for calling this report to my attention.

2011 – a year replete with expensive disasters

Tower Bridge, Lodon Tower, & Swiss Re building

Image by flow14 via Flickr

If you share my feeling that 2011 is a year full of disasters and calamaties, here are some statistics to back up that impression.  From the Swiss Re insurance co., Catastrophes cost the insurance industry USD 70 billion in the first half year of 2011; Sept. 9, 2011.

Based on first half 2011 events:

  •     2011 will be the year with the highest insured earthquake losses in history
  •     2011 ranks already as the second costliest year for insured catastrophic losses

According to preliminary sigma estimates, total insured losses for the global insurance industry from natural catastrophes and man-made disasters reached an estimated USD 70 billion in the first half of 2011. This is more than double the figure of USD 29 billion for the first six months of 2010. Claims from natural catastrophes alone reached USD 67 billion in the first half of 2011, compared to USD 27 billion in the same period of last year.

Total economic losses to the society (insured and uninsured) for the first half year’s disasters were almost USD 278 billion. Approximately 26 000 people lost their lives in catastrophes in the first six months of 2011, most of them in Japan.

With more than USD 70 billion in insured catastrophe losses in the first half year alone, 2011 already ranks as the second most expensive year according to sigma records. This figure was only surpassed in 2005 when total catastrophe claims amounted to USD 120 billion, with hurricanes Katrina, Wilma and Rita causing claims of over USD 90 billion.