A lack of hurricanes is not all good for insurers

Scott Tong Aug 26, 2014
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A lack of hurricanes is not all good for insurers

Scott Tong Aug 26, 2014
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On this morning nine years ago, Hurricane Katrina was creeping west across the Gulf, after smashing through Florida. Since then, North America has not seen a major hurricane. Which might lead you to think all’s well with the insurance industry.

That’s not exactly the case.

Katrina was the costliest disaster ever for insurance companies. They paid out more than $40 billion. Since then, it’s been pretty calm as catastrophes go.

But here’s the paradox: When the sky is clear, insurance prices can fall.

“The insurance marketplace had gone through a pretty severe soft cycle, oh, really for the last 10 years,” says David Bradford of industry consultancy Advisen.  

In general, lots of surplus money and insurance coverage is now chasing customers. It’s a buyer’s market.

As for insurers, they’re struggling with modest prices, but have plenty of reserves stocked away.

“They have built up sufficient reserves and can swallow large losses at this fairly well,” says Greg Knapic at Wells Fargo Insurance. “You just don’t want to have too many of them.”

And we have moved into this year’s big storm season. Knapic says it would take a record $50 billion or $100 billion event to shake up a crowded market.

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