Superstorm Sandy capped what’s been a pretty impressive couple of years for U.S. natural disasters. There have been wildfires, tornadoes, floods and derechos. And insurance companies are on the hook to pay billions in related claims.
“We’re seeing more of everything, and what we’re doing is trying to factor that in going forward as we work with others to have a better sense of what the future holds,” says State Farm spokesman David Beigie.
Here is one thing the industry agrees is true: The cost from hurricane damages is increasing. That’s largely because population density and the cost of coastal property increases every year.
Do insurers expect to see more frequent and more intense weather events in coming years? Opinions diverge.
Peter Hoppe heads the Geo Risks Research center for Munich Re, a global company that insures other insurers. His company put out a report just before Sandy warning that North America will face a rising number of natural catastrophes due in part to greenhouse gas emissions.
“We believe that climate change is a big problem and will drive losses in the future,” Hoppe says.
He says there is no evidence climate change caused Hurricane Sandy. But, he says, it doesn’t matter whether insurers believe in man-made climate change. His report says the number of weather-related events nearly quintupled in North America over the past three decades. And that means premiumswill increase in the long run if exposure continues to increase.
“On the long term, definitely we have an interest in what will be happening in 50 years, or even in 100 years because this concerns our business model in general. It may be that in the long term, things become uninsurable,” Hoppe says.
But this is not a view embraced by the whole industry.
If insurance companies believe the increase in severe weather events is merely a coincidence or the result of poor weather prediction, we’re going to have financial problems because insurance rates will continue to go up. On the other hand, if insurance providers are properly informed about climate science, they’ll have a market incentive not to insure those who participate in poor environmental practices and do what they do best in our political system, lobby our politicians to enact climate legislation.