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P&C industry should get proactive as extreme weather trends continue: report


September 24, 2012   by Canadian Underwriter


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The property and casualty (P&C) industry will continue to be hit hard by extreme weather events and needs to be proactive in their catastrophe modelling and industry dialogue about climate change, says one advocacy group.

A September 2012 report from Ceres, Stormy Futures for U.S. Property/Casualty Insurers: The Growing Costs and Risks of Extreme Weather Events, suggests that since the P&C industry is one of the hardest hit from natural disasters, it should be more aggressive in combating climate change and educating the public about its implications.

By the end of 2011, the industry’s net underwriting loss was $34 billion, the report says. It also had the more credit downgrades in a single year since 2005, according to Ceres. The P&C industry’s overall profitability also “significantly lags behind other industries,” the report states.

In 2011, the P&C industry was hit particularly hard, the report suggests, with insured losses from natural catastrophes in the U.S. totalling $32 billion. During that year, the U.S. saw 14 major extreme weather events, each causing $1 billion or more in damage, according to Ceres. 

Last year was second only to 2005, where damages from Hurricanes Katrina, Rita and Wilma hit the U.S. Gulf Coast hard, with insured losses totalling about $60 billion.

Globally, 2011 had estimated economic losses of $380 billion from catastrophes, costing P&C insurers more than $100 billion, the report suggests.

The 2011 numbers are also startling, since only one hurricane hit the U.S. coast that year, Ceres says. Its thunderstorm and tornado season, though, was the deadliest in nearly 50 years, and heat, droughts, wildfires, flooding and winter storms also caused significant damage.

While 2012 hasn’t been as severe, recent disasters speak to a trend that has been growing over the last 30 years, the Ceres report states. Losses from excessive precipitation, for example, were the highest on record between 2008 and 2011, it says.

It also cites industry organizations such as A.M. Best, that suggest catastrophe trends will continue to have an impact on insurers’ performance results.

Ceres has laid out several recommendations for insurers, reinsurers, investors, ratings agencies and regulators. Among its suggestions, the group recommends insurers partner directly with climate scientists to develop new modelling and lend expertise to land use planners.

Insurers need to look at their risk exposure based on emerging weather patterns, not just past experience, Ceres notes. They should also update insurance pricing and underwriting of risks based on catastrophe trends, it suggests.

As it did with educating consumers about smoke detectors in their homes, the industry should now engage with the public about the effects of greenhouse gases and other climate change-related issues, Ceres says.

The full Ceres report is available for download on its website www.ceres.org.