An increase in severe storms, flooding, wind, wildfires and other disasters are driving claims skyward.
Flooding and wildfires are making massive headlines this summer and this extreme weather risk is placing considerable pressure on the property insurance industry.
These types of disaster are spiking the number and cost of business and homeowners insurance claims.
In fact, the extreme weather risk may have a greater economic toll on the insurance industry than any other industry in the world. Though insurers have been increasingly aware of the threat of climate change with its rising storm frequency and intensity, droughts, tornadoes, wildfires and more. However, the reality of this threat has become considerably more apparent as the wildfires burn across swaths of California, Oregon, Montana and Western Canada, and as flooding has drowned parts of Asia, Texas and Louisiana. This, as Hurricane Irma takes aim at the Caribbean and, potentially Florida and the Atlantic coast of the United States.
The extreme weather risk from Hurricane Harvey alone has made it among the 10 costliest storms in U.S. history.
September 30, 2017 marks the expiry date of the National Flood Insurance Program (NFIP). This government program could cease to provide property owners with coverage against flooding unless it is reauthorized by Congress. The impact the destruction left behind by Hurricane Harvey on NFIP has yet to be determined. However, the cost of the storm will be considerable.
At the moment, the federal flood insurance program covers over 240,000 people in the affected areas. This represents a total of over $60 billion in coverage, according to data from AIR Worldwide.
NFIP already faces a debt of $24.6 billion to the U.S. Treasury. The program has a $30 billion borrowing limit and it is more than likely that this year’s severe storms – or even Hurricane Harvey alone – could push that maximum amount. Should the flood insurance program be permitted to lapse, it will not be possible to sell or renew the policies, says the Federal Emergency Management Program (FEMA), which oversees NFIP. It would also not be allowed to begin management or mapping activities, create extreme weather risk assessments or even pay existing claims.