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The economic cost of natural disasters has an immense impact on the U.S. economy. The cost is growing steadily, particularly as natural disasters become more frequent due to changing climatic conditions. In terms of insured losses, if one were to look at the ten costliest disasters in United States history, eight were hurricanes while six have taken place since 2000—Hurricane Katrina ($41.1 billion in 2005); Hurricane Ike ($12.5 billion in 2008); Hurricane Wilma ($10.3 billion in 2005); Hurricane Charley ($7.5 billion in 2004); Hurricane Ivan ($7.1 billion in 2004); and Hurricane Rita ($5.6 billion in 2005). While the United States has not had a major land-falling hurricane recently, or a major earthquake since Northridge ($125 billion in 1994), the rising likelihood of extreme and catastrophic weather events makes monitoring the frequency and impact of natural disasters a critical regulatory function. In 2011, U.S. insured catastrophe losses totaled $35.9 billion, more than double the $14.1 billion in catastrophe losses sustained in 2010, according to the Insurance Information Institute. U.S. catastrophe losses in 2011 were associated with winter storms, wind storms, tornadoes and hail damage. Over a ten year period, annual average U.S. catastrophes losses totaled $23.5 billion. The range is from a low of $7.3 billion in 2007 to a high of $61.9 billion in 2005. With 171 catastrophe events, 2011 was the fifth most expensive year on record. It remains unclear if the elevated level of insured catastrophe losses last year will put pressure on the market. If the 2012 season is relatively catastrophe-free, then there will likely be little impact on property insurance rates and catastrophe reinsurance. However, that could change if we have another active hurricane season this year. The Climate Prediction Center (a part of NOAA) will release their forecast for the 2012 hurricane season this May. Insurance plays a large part in helping with the economic recovery following catastrophic events. The 2004 and 2005 hurricane seasons brought unprecedented devastation to the gulf coast causing over 1,200 deaths, 7 million insurance claims, and almost $100 billion in insured losses. As hard as it is to imagine, future mega catastrophes could be even worse. A reactive response will not suffice. The NAIC and state insurance regulators have developed a comprehensive national plan for managing catastrophe risk that incorporates new risk management techniques with a solid foundation of solvency and consumer protection inherent in state insurance regulation. Parallel to these efforts, Congress has indicated renewed interest, as well. Currently, there are several bills pending in Congress that deal with various aspects of catastrophe risk management. NAIC members have taken an active role in educating Congress and providing technical feedback on various proposals regarding natural catastrophes. Over the last several years, NAIC members have met with Members of Congress and have regularly testified on these important issues, stressing the important role of the states in effectively managing a natural disaster response. |
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| Members of the National Association of Insurance Commissioners (NAIC) discuss the impacts of natural disasters in their states during 2011. They describe efforts of state regulators to address the needs of insurance consumers and the market in the wake of historic losses. | ||
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