2013 Catastrophes Lessen, Will It Last?
Earlier this week, the Insurance Information Institute (I.I.I.) released its data-rich study of the insurance industry as a whole. We already looked at the impact of the insurance industry on the national economy. Today, we shift gears to examine the types of costs incurred, and perhaps the costliest area of doing business for most companies is that of catastrophe loss.
In the I.I.I. report, the final numbers for 2013 were released, and as expected, they fared much better than previous years with the number of claims totaling 1.8 million — the lowest since 2007’s 1.2 million. As for dollar amount, the $12.9 billion in estimated insured property losses resulted in the best performance since 2009 when the industry incurred $10.6 billion ($11.1 billion when adjusted to 2012 numbers).
For 2013, there were 128 total events consisting of 207 fatalities and estimated overall losses of $21.825 billion. Translation: more than 58 percent of the estimated losses incurred were insured.
January: A Busy Month
Allstate released its own numbers, revealing that many companies should get ready for a more active year. For January 2014, the nation’s largest publicly held personal lines insurer, reported $277 million, pre-tax ($180 million after-tax), in cat losses.
“Catastrophe losses occurring in January comprised six events at an estimated cost of $271 million, pre-tax, plus unfavorable reserve re-estimates of prior reported catastrophe losses,” the company explained. “One of the events met the definition of a winter freeze catastrophe in one region of the country but not in other regions due to the amount of claim counts.”
The company continued: “Non-catastrophe losses in these other regions were $39 million, pre-tax, which will be reflected primarily in the homeowners combined ratio and the homeowners underlying combined ratio that excludes catastrophe losses and prior year reserve re-estimates.”
By definition, a catastrophe is an event that produces pre-tax losses before reinsurance in excess of $1 million and involves multiple first party policyholders, the company explained. It can also be “an event that produces a number of claims in excess of a preset, per-event threshold of average claims in a specific area, occurring within a certain amount of time following the event.”
“As a result, catastrophe losses as broken out in underwriting results will not always include all of the frequency and severity impacts of severe weather from an event or increased auto physical damage losses,” Allstate said.
Common Catastrophic Losses
Going back to the I.I.I. report, it appears that severe thunderstorms continue to be the most commonly occurring of the natural disasters, which often drive catastrophic loss totals. In 2013, there were 69 events and 110 fatalities. In both events and fatalities, they accounted for more than 50 percent of the data.
Wildfires, heat, and drought, (WHD), accounted for 22 events (No. 2 in that department), while winter storms (11 events) took the second slot in fatalities at 43. (WHD events produced 29 fatalities.)
While catastrophic losses were comparatively low over the last decade, most analysts and insurers agree that 2014 will be another story altogether. The numbers that Allstate released offer a peek into the possible future, if the remaining three seasons bring with them the same frequency of this winter’s storms. The best thing that customers can do is touch base with their insurance agents today to learn more about what their policies cover related to natural disasters. As the I.I.I. information proves, gaps in coverage can result in billions of dollars in out-of-pocket costs or lost property. Knowledge is a significant weapon in the fight against Mother Nature’s wrath.