t may seem like an obvious statement, but the weather affects people’s lives each day. Concerns may include things like: Do I need an umbrella? Should I get out the snow shovel? While consumers may be forced to deal with these bothersome questions, insurers have a much more daunting task when addressing the elements.
Extreme Weather Drives Frequency
According to MunichRe, insured losses for 2012 were $57.9 billion from 184 natural catastrophe events.[i] As of mid-year 2012 there were $10 billion in CAT losses, dominated by thunderstorm, wildfire and tornado activity.[ii]
And in late October, Superstorm Sandy hit the east coast, leading to 1.38 million privately insured claims for an estimated $10 to $25 billion in insured losses.[iii] The industry saw approximately 230,000 auto losses, with 56 percent from New York, 26 percent from New Jersey, and the remaining 18 percent of the losses in other states.[iv] A very large share of the auto losses resulted in totaled vehicles, with the large volume and heavy concentration of high dollar vehicles substantially driving up overall national total loss vehicle costs. Historically when we experience a significant weather event – i.e. Hurricane Katrina in Sept. 2005; the Florida Hurricanes in 2008; Hurricane Irene in 2011; overall U.S. total loss values have seen a spike (see Figure 5). The volume of totaled vehicles nationally rose 500% for Nov 2012 versus the monthly volume for Nov. 2009, Nov. 2010, and Nov. 2011. So while New York and New Jersey saw the majority of losses, the impact on national total loss valuation statistics is significant. It’s important to note that much of the cause for those higher valuations is due to a larger number of new and luxury models residing in that region of the country.
Insurers’ Concerns for the Future
A study conducted by Berkeley Lab’s Environmental Energy Technologies Division shows insurance losses related to weather and climate now average $50 billion a year – a figure that has doubled each decade since the 1980’s(adjusted for inflation).[v] The National Oceanic and Atmospheric Administration (NOAA) recorded 11 weather related events that resulted in over $1 billion in losses in the U.S. in 2012: seven severe weather/tornado events; two tropical storm/hurricane events; and the yearlong drought and associated wildfires.[vi]
Weather patterns anticipated for 2013 include continued drought conditions in the Great Plains, and more tornado activity than seen in 2012.[vii] Additionally, with current weather patterns leading to the warmest water in the Atlantic ever recorded, any storm that does hit will likely be stronger and longer, according to climatologist Evelyn Browning-Garriss.[viii] Much of the heavily populated Atlantic and Gulf coastlines lie less than 10 feet above sea level, and are increasingly at risk of storm surges such as during Sandy.[ix] As populations have grown in these areas, the cost of storms has also risen.
What Does It All Mean?
The ability to handle the large fluctuations in claims volume related to significant weather events will pose a challenge for insurers. This type of fluctuation introduces volatility in a normally stable environment. Insurers are finding they must cater their claims service options to new consumer demands and demographics, and also have the ability to implement process and procedures than can easily be ramped up and down post-catastrophe.
In these cases insurers can expect an impact on costs, and potentially, customer satisfaction. If the severe weather trends continue it’s possible we’ll see a shift in the way an insurer responds. To combat the issues of rising costs, increased consumer demand in affected areas, and potential decreased customer satisfaction in others- companies may be required to explore significant changes. It’s fair to assume insurers will try to leverage advancements in technology along with changes in various processes to reduce costs and increase customer satisfaction. These innovations should help insurers brace for the worst and be better prepared to handle the volatility that comes with severe weather.
For more in-depth analysis, stay tuned for the 2013 release of Crash Course- CCC’s comprehensive report on trends affecting the collision repair industry.
The information and opinions in this publication are for general information only, are subject to change and are not intended to provide specific recommendations for any individual or entity. Although information contained herein has been obtained from sources believed to be reliable, CCC does not guarantee its accuracy and it may be incomplete or condensed. CCC is not liable for any typographical errors, incorrect data and/or any actions taken in reliance on the information and opinions contained in this publication.
[i] Carl Hedde, SVP, Head of Risk Accumulation, Munich Reinsurance America, Inc. “2012 Natural Catastrophe Year in Review.” January 3, 2013.
[iii] PCS; AIR, Eqecat, AIR Worldwide; Insurance Information Institute.
[v] Stephani, Justin. “Insurers are Learning to Adapt to Climate Change.” www.insurancenetworking.com, December 14, 2012.
[vi] “NOAA: 2012’s U.S. Billion-Dollar Extreme Weather Events ‘Impressive’.” www.insurancejournal.com, January 7, 2013.
[vii]Jergler, Don. “Continued Drought, More Tornados Forecasted.” www.insurancejournal.com, December 17, 2012.
[viii] Jergler, Don. “Continued Drought, More Tornados Forecasted.” www.insurancejournal.com, December 17, 2012.
[ix] Sutton, Jane. “Hurricane Center Pushes to Improve Storm Surge Warnings.” www.claimsjournal.com, November 30, 2012.