Natural disasters are an inherent part of the insurance industry.
They are a problem that the industry has been fighting for as long as it has existed, and the battle is fraught with conflicts that insurers often lose. There is no such thing as absolute protection from natural disasters. Floods will cause damage despite the best efforts made to keep waters at bay, earthquakes will shake buildings to rubble, and tornadoes will blow houses apart. The best that the insurance industry can do is offer aid for the recover from natural disasters.
When it comes to natural catastrophes, insurance cannot mitigate the damage caused by a hurricane or a flood.
It can, however, provide a financial windfall for those that are victims of disaster. When a disaster happens, a person’s home may be destroyed. Insurance cannot prevent this, but with the right coverage, that person could receive the financial aid they need to repair their home. Insurance benefits could give that person and their family the money they need to stay in a hotel for a time as their home is being repaired. Insurance can, in some cases, provide financial support for those that cannot work because of a disaster as well.
The insurance industry can’t stop catastrophe, but it has been working to promote the mitigation of disasters. Some insurers are investing in better flood protections through the construction of flood barriers. Some are also encouraging better construction practices in order to make buildings more resilient against earthquakes. Few of these efforts are being taken seriously by government agencies, however, leaving some sectors of the insurance industry exposed to losses.
Because natural disasters are such a serious problem for the insurance industry, many insurers have begun calling for action on climate change. This is a controversial issue for most, but not for insurers. Climate change will not lead to more earthquakes, but it will make hurricanes and tornadoes more common and spark a rash of floods in some parts of the world. In the future, however distant it may be, climate change could become an insurmountable challenge that could consume the industry as a whole.