If a massive hurricane hits, what would be the ramifications for the pricing of hurricane insurance in that area? Similarly, what would happen to the pricing of earthquake insurance if a major earthquake were to occur?
In such scenarios, prices would likely go up, as insurers took a step back and reassessed. And that’s one reason why firms should be taking a long view when it comes to disaster planning and natural catastrophe insurance expenditures.
At the moment, there is a good deal of capacity, or funding, in the catastrophe market. As a general rule, with excess capacity comes lower rates for those looking for coverage.
One reason for the excess capacity? An increase in the availability of catastrophe bonds (CAT) bonds, a security offering that has become more prevalent in recent years. Also, with the recent exception of Hurricane Matthew, the United States – knock on wood – has been fortunate not to endure many expensive catastrophic natural disasters in recent years.
Hurricane Matthew, per one estimate, could create insured losses of nearly $9 billion, per Insurance Journal. While a very expensive storm from which to recover, the insured losses are less than half as expensive as those incurred during Hurricane Sandy and less than a fifth as much as the losses incurred during Hurricane Katrina, per data from the Insurance Information Institute. So it remains to be seen if Hurricane Matthew is the sort of storm that could have a major impact on rates.
Another part of the natural catastrophe market with excess capacity is the earthquake coverage sector. From most accounts, it’s not a bad time to be looking for earthquake coverage. However, the unpredictability of earthquakes and the high cost these events can incur could change matters quite quickly.
As 2016 ends, it’s a good time for companies to ensure they have the proper natural catastrophe coverage. The Plexus Groupe can help you understand the complexities and costs and help you make the best strategic decisions. Visit us on the Web at plexusgroupe.com, or contact a Plexus property and casualty executive at 847-307-6100.