The immense devastation caused by the recent hurricanes, Harvey, Irma and Maria, has been far more widespread than we have experienced in many years. The geographical sweep was cataclysmic, from the Gulf Coast of Texas and Louisiana; large, highly-populated areas of Florida; the entirety of Puerto Rico and numerous Caribbean islands. The three powerful storms occurred in rapid succession and resulted in major damage or total loss to the homes and businesses of millions of people, severe disruption of utilities and community infrastructure, and sadly, too many human lives lost.
Once the aftermath has been assessed, the costs will quickly eclipse those of Katrina in 2005 and Sandy in 2012. What can we expect to see in the insurance industry as companies begin paying out billions in claims from these catastrophes? In the immediate wake of the hurricanes, a lot of investors pulled out of their insurance industry positions, sending some insurer stock prices downward. However, these market fluctuations are not likely to affect carriers’ ability to pay for covered losses. Lessons were learned from previous disasters and insurers are much better prepared for these unusually large losses than they were a decade ago. Most insurance companies have enhanced their surplus during the relatively quiet hurricane seasons, literally saving more for the “rainy days” that eventually come. In addition, more robust reinsurance arrangements limit how much exposure a carrier has to major – or multiple – loss events.
Most of the impacts on the cost or availability of coverage will probably been seen regionally, in the areas directly affected by the storms. Property and vehicle premiums in states impacted by previous major hurricanes went up 12-20% on average in the year following the event. Premiums aside, the levels of insurance company surplus against their potential exposure to covered losses affects the supply of coverage available on the market. This is also known as “capacity,” and can potentially make it difficult to obtain needed insurance coverage at any cost.
It will not be surprising to see overall property premiums affected somewhat, even far away from the paths of Harvey, Irma and Maria. Insurers must replenish their surpluses, and are going to be paying more to reinsure their risks in order to continue offering the amount of insurance needed not only by businesses and homeowners, but by schools and other public facilities supporting their communities.
