Severe weather is forcing the insurance industry to look twice at strategies

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Following three solid years of dramatic catastrophes from storms and droughts, insurers may need to re-think underwriting.

severe weather storm tree powerClimate change and severe weather are beginning to change the size, frequency, and nature of claims that are being faced by the insurance industry over the last four to five years, and it is reaching the point that insurers are starting to be advised by national groups to begin rethinking their underwriting strategies.

The insured losses are on the rise from claims resulting from storms, flooding, and drought have been.

According to the president of Northbridge Insurance, Fabien Richenberger, the insured losses across the industry in Canada that resulted specifically from severe weather had been $915 million in 2010. By 2011, they had nearly doubled to $1.7 billion, dropping only slightly in 2012 when they hit $1.2 billion. Last year, they were nearly three and a half times what they had been in 2010, as 2013’s total was a jaw dropping $3.2 billion.

The losses that were in the billions from severe weather used to be only once every four to five years.

Clearly the trend has changed in the industry and insurance companies are now being faced with that type of loss on a yearly basis – at a minimum. Richenberger said that it was based on this idea that the sizeable losses would be once every half decade that products would be priced by insurers.

He explained that “The implication of that is we have to re-think how we underwrite, how we price our business, what type of coverage we provide.” Equally, he also pointed out that the insurance industry must keep in mind that the incentives that are being provided to consumers should be greater, in order to encourage them to take action of their own, such as the installation of hail resistance metals and sump pumps.

Richenberger used the example from a year ago when severe weather brought about massive flooding in southern Alberta, which brought about a total estimated economic loss of $5 billion, from which $2 billion was insured. It was only a month after that when a single rainstorm on July 8 in the city of Toronto brought on “surprisingly expensive losses”.

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