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Clarke & Sampson Blog  

Februrary 7, 2012 

 

The year of disasters: what is driving your insurance premiums?

 

The year of 2011 was rattled by debt crises, ongoing foreclosures, high unemployment, and political turmoil. Hidden amongst these events is an alarming fact that seems to have gone unnoticed: 2011 was the worst year on record for economic losses from disasters.   

 

Lets recall some of the insured disasters that took place in 2011 – Japan was hit by an undersea mega thrust earthquake that led to tsunamis, flooding, and nuclear meltdowns at three different facilities. About $36 billion dollars of insured losses occurred as a result of the earthquake. New Zealand was also hit by a devastating earthquake that resulted in $12 billion in insured losses. Hurricane Irene, which caused extensive wind and flood damage throughout much of the east coast, cost about $5 billion in insured losses. Finally, by adding up the covered damages from tornadoes and severe storms that took place in the U.S. this year, there were approximately $19 billion in insured losses (Fox Business). The year’s losses were enormous.  

 

What does this mean for the future? It’s hard to say. Generally, after substantial claim payments, insurance companies must increase their rates to cope and recover from the losses. Interestingly, when many of the largest insurance carriers renewed their own insurance - that’s right, insurance companies have to purchase insurance too - on January 1st, their insurance premiums were not higher (Bloomberg). According to Willis Re, the world’s third-biggest reinsurance broker, this can be seen as a sign that insurance companies are healthy enough to compete on price. Healthy insurance companies means you may not be stuck with a premium increase – yet.

 

According to some of the major insurance carriers, the availability of capital is influencing insurance premiums (Bloomberg). While the disasters that took place in 2011 were catastrophic and the payouts were enormous, they may not be the driving force of your insurance premiums. What is really driving your insurance premiums is the sovereign debt crisis, which is creating uncertainty regarding the availability of capital. If the economic situation in Europe continues to deteriorate, you may see broad-based price increases.    

 

Looking forward, it is important to remember that the next earthquake, flood, or other natural disaster could take place anywhere. We should always hope for the best, prepare for the worst, and carry insurance for the full amount. While we may still be feeling the effects of the 2011 disasters, carrying the proper insurance coverage is what softens the blow, speeds up recovery, and promotes stability.

 

 Lets hope that 2012 is a safe and disaster free year.  

 

 

Blog Archive

Protecting Your Home This Winter - January 10, 2012

Did you know that Lloyd's of London, the world's biggest insurance market, was once just a small coffee house owned by a man named Edward Lloyd? It was at Lloyd's that shippers and insurers met to plan and financially guarantee voyages and the safe arrival of cargo. It's a shame insurance isn't as simple as shaking hands at a coffee house anymore, but it is nice to know that the experts at Clarke & Sampson are here to help you with even the most complex insurance needs.