The insurance industry has been able, in the past few
years, to avoid a string of major catastrophes like those in the early
2000’s. One might think that property
insurers have gotten off easy. Appearances can be deceiving, however, as the
industry has been battered by smaller, more frequent, events. In fact, Fox Business recently reported that the first quarter of 2017 was the most
expensive quarter for U.S. property insurers in more than 20 years. The cause
for such dreary numbers can be attributed to severe weather—namely tornadoes,
flooding, hail, and ice storms. As of early April 6, 2017, there have already been 5
weather and climate disaster events in the U.S., with losses exceeding $1
billion each. The average for the most recent 5 years
(2012–2016) is 10.6 severe weather events per
year. In total, it is estimated that insurers have paid approximately $6 billion in weather-related claims so far this year compared to an estimated $4.5 billion as of the same time last year.
It is also worth noting that the first quarter of the year
typically yields fewer catastrophe-related damages because hurricane season
does not start until the second quarter. However, there were over 400 tornadoes from January through March 2017, compared to 205 during the same period in
2016. When the final tornado count
for March is determined, the month will likely rank among the 10 most active Marches for tornadoes. Moreover, hail continues to show
that it has devastating economic effects for both commercial and personal
lines.
With more than double the number of tornadoes than in 2016
and an increase in hail claims, insurers are bracing themselves for an increase
in weather-related claims as we enter the second quarter. According to NOAA, the contiguous U.S. had the second wettest April in over 123 years.
Moreover, hail is most likely to
fall in the U.S. during the months of May and June. With the hail and
tornado season underway and the hurricane season around the corner, weather related-claims
should continue to roll in during the second quarter.
Yet, it may not be all doom and gloom for property
insurers, as forecasters are calling for a below-normal hurricane season this
year. In fact, only 11 named storms are predicted for the U.S. for 2017. Of
these named storms, only four are predicted to become hurricanes and only 2 are
predicted to be Category 3 or higher (Category 3 hurricanes have sustained
winds of 111 miles per hour.). This is slightly below the 30-year average of 12
named storms and six hurricanes per hurricane season. If these predictions are
accurate, insurers will have El Niño to thank, since warmer-than-normal ocean water temperatures in the Pacific Ocean may limit the development of storms in the Atlantic. But as we all know from past hurricanes such as
Andrew, Katrina, and Sandy, it only takes one named storm to have significant
economic impact on the industry.
Insurers have no choice but to brave the storms to see
how the 2nd and 3rd quarter numbers shape up. Mother
Nature will always be unpredictable, and she will sometimes be violent.
Although storm chasers will keep searching for the next big natural disaster,
insurers should keep an eye on the smaller, more frequent, events that can be
just as damaging to their loss ratios. The first quarter 2017 numbers have
already told their cautionary tale.
Published by Jennifer Hoffman
