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). Moreover, while the United States has not had a major land-falling hurricane since Wilma, or a major earthquake since Northridge ($12.5 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.
The year 2012 was an above-average year for U.S. insured catastrophe losses due to a series of severe weather-related catastrophes. U.S. insured losses totaled $58 billion in 2012—far above the 2000 to 2011 average loss of $27 billion (in 2012 Dollars), according Munich Re. Superstorm Sandy, which made landfall on the northeast coast on October 29th, topped the list of the top five largest natural catastrophe events of 2012. Sandy is estimated to cost the insurance industry roughly $20 billion and is expected to become one of the top costliest disasters in U.S. history. The summer long-drought in the U.S., which ran from June through September, was another major loss event of 2012. The December 2011 – November 2012 period was the warmest in U.S. history since records began in 1895.
The National Oceanic and Atmospheric Administration (NOAA) is forecasting an active or extremely active hurricane season this year. During the six-month hurricane season, which begins Jun. 1 and ends Nov. 30, NOAA anticipates 13 to 20 named storms (winds of 39 mph or higher). Of those, seven to 11 could become hurricanes (winds of 74 mph or higher).Those ranges are well above the seasonal average of 12 named storms, six hurricanes and three major hurricanes.
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.