Quakes and Floods

Quakes & Floods to Affect Premiums

Recent months have seen a spate of natural disasters with the insurance market, Lloyds of London, being heavily involved in the aftermath. Lloyds estimates that its insurance market faces claims totalling $3.8 Billion (£2.33 Billion):

                                         Estimated Claims

Incident                                              Lloyds of London                   Estimated Claims                                                                                                           Insurance Industry Globally
                                                                    
Japanese Earthquake & Tsunami     $1.95 Billion  (£1.2 Billion)              $30 Billion
New Zealand Earthquake               $1.2 Billion (£750 Million)               $9 Billion
Australian Flooding                       $650 Million (£400 Million)              $5 Billion

Richard Ward, the Chief Executive of Lloyds of London, said “The beginning of 2011 has seen a major impact on communities in Australia, New Zealand and Japan. As ever, our priority remains to assess and settle valid claims as swiftly as we can to help these communities get back on their feet.”
“The Lloyd’s market is as well capitalised as it has ever been and, while claims from all three events could still evolve over time, the market’s total exposure is well within the worst-case scenarios.” He added: “We expect to see a firming of rates as a result of this first quarter and the recent tornadoes in the United States”.

When insurers underwrite a book of business they make a judgement as to how much of the risk they can take themselves. They then off-set the remainder of the risk by taking out re-insurance from re-insurers such as Munich Re and Swiss Re.  (Without Reinsurance, the major “high street” insurers would not be able to insure as many risks as they do at present with a corresponding increase in premium rates, more stringent policy terms and a shortage of insurance availability). With regard to the Earthquake and Tsunami in Japan, most of the losses will be met by Japanese insurers. Only 40% of these losses have been reinsured by the Japanese insurers  which means that they will be footing the bill for 60% of the insurance claims while the remaining 40% will ultimately be met by reinsurers.   Major reinsurers, such as Swiss Re and Munich Re took the lions share of the reinsurance risk from Japan. As a result Munich Re has suffered a $2.1Billion hit from the Japanese earthquake, which is reportedly larger than the company’s entire natural disaster budget, and Swiss Re has estimated claims at $1.2 Billion.     
Since the beginning of this year, global bill for natural catastrophe losses have topped $50 Billion. This, combined with the continuing low return on investments will inevitably create an upward pressure on insurance rates generally.

Major insurers such as Hiscox and Munich Re (the World’s largest re-insurer) have warned of large price increases as early as this Summer, with Hiscox predicting rises of 10% in the US catastrophe market. 
The after effects off the recent natural disasters are still being felt in the global financial markets and will be visiting a premium near you in the not too distant future. Take a look at your insurance arrangements in good time before your renewal date and consult an insurance broker to review the market so that you can be sure you have the most appropriate cover and the best deal available from the market. 

If you would like to discuss any of the features covered in this article then please call me, David Wilson, on 07970 304169 or email me on david@nevillejones.com
David Wilson - The Business Insurance Expert.
Protecting people property & livelihoods
by giving right advice, at the right time, providing peace of mind.