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Insurance Insecurities

Carson Carroll

Global Corporate Citizenship


News Talk One

I believe that many of us remember the prolific damage dealt by Hurricane Sandy in New York City, New Jersey and Long Island in 2012. Well, according to some in the insurance industry, the price tag for the cleanup from Hurricane Irma will be as high as $56 billion. While this pales to a recovery cost of $108 billion from Hurricane Katrina, it is about the GDP of Luxemburg. The cost of recovery in Florida might even be higher since Florida is known for insurance and everything related to the industry. Right now, insurance executives from all over the world are currently meeting in Monte Carlo for an annual conference, and this $30 billion is probably keeping them awake in their premium five-star suites. Insurers all over the globe are nervously watching Hurricane Irma because insurance is a global industry. Especially since the insurance markets are closely tied electronic trading and profit forecasting.

I looked on major insurer’s websites and on almost everyone there is a large message with links to file claims for damages sustained in Hurricane Irma. Many of these companies have not only policy holders in North America but worldwide, take AIG as an example. Until recently Manchester United jerseys had AIG written in large font on their chests.

Munich Re is one of the world’s biggest reinsurers, could be facing an extremely large payout if insurance companies like State Farm, Progressive, AIG and All State end up paying out more than their premiums collect. By no means am I an expert in the insurance industry, but to my knowledge reinsurance is a sort of safety net for insurance companies in case the company is no longer solvent due to massive payouts that are greater than premium payments. It is a sort of risk management solution for these insurance companies.

All of this cost forecasting is leading many to believe that the insurance industry will chalk up a net loss at the end of this fiscal year. However, this means that global reinsurance companies like Munich Re can charge higher prices for their services, leading to high premiums not only for those affected by Irma but everyone who has any sort of commercial coverage.

I believe that insurance is a calculated game of numbers of premiums minus claim payouts. However, in this math companies tend to forget that these “payouts” are not just cash. They are homes, businesses and even lives that cannot be replaced. I believe that during the recovery effort it would be wise for these companies to just process claims, but to actively invest back into these rebuilding communities. By allowing policy holders to rebuild homes on higher ground or with better foundations. Or by helping local industry by making them “preferred vendors” during the recovery process. Because these communities will be hit again harder and more frequently in the not so distant future.

Original article: In sunny Monte Carlo, insurers tally hurricane costs, Reuters, 09/10/2017.

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