Boston — As the hurricane season begins, statistics and research indicate catastrophes and their repercussions should be top of mind for insurers. A report recently completed by Boston-based catastrophe risk modeling firm AIR Worldwide Corp. estimates that over the past three years the insured value of properties in coastal areas of the continued to grow at a compound annual growth rate of just over 7%. Despite the recent weakening of the real estate market in many areas, the insured value-or the cost to rebuild properties-has maintained an annual growth rate that will lead to a doubling of the total value every decade.

"While the scientific debate over the effects of global warming on the frequency and severity of hurricanes remains inconclusive, there is no question that the significant increase in the number and value of exposed properties over the last decade has and will continue to contribute to increasing hurricane losses for insurers," says S. Ming Lee, president and CEO of AIR Worldwide.

The Wharton Risk Management and Decision Processes Center at The Wharton School, University of Pennsylvania conducted a two-year study that analyzes data on more than 10 million homeowners' policies and the operations of private and state-run insurance companies in the hurricane-prone states of Florida, New York, South Carolina and Texas, interpreted in the context of existing state insurance regulatory systems and the structure of the property insurance market in the United States.

Much like AIR Worldwide's conclusion, Wharton found that property values at risk in hazard-prone areas in the have drastically increased in recent years. The key socioeconomic factors causing the increased losses are the development in hazard-prone areas and increased value at risk. For example, the population of Florida was 2.8 million in 1950, 13 million in 1990 and is projected to grow to 19.3 million in 2010. Today, 80% of insured assets in Florida are located near the coast, the high-risk area of the state. The insured exposure in Florida coastal areas was $1.9 trillion in 2004 and is growing, increasing the likelihood of severe economic and insured losses from future hurricanes unless cost-effective mitigation measures are implemented. Other coastal states also have large property values exposed to flood and hurricane risks. Today, over 50% of the population lives in coastal counties.

The Wharton research also concludes there has been a major increase in the cost of great natural catastrophes worldwide over the past fifteen years. A comparison of these economic losses (insured and noninsured) over time reveals a huge increase: $53.6 billion (1950-59), $93.3 billion (1960-69), $161.7 billion (1970-79), $262.9 billion (1980-89) and $778.3 billion (1990-99). The current decade has already seen $420.6 billion in losses, principally due to the 2004 and 2005 hurricane seasons, which produced historic records.

Norman, Okla.-based National Oceanic and Atmospheric Administration's forecast calls for 12 to 16 named storms between June 1 and Nov. 30. Other major forecasting organizations also believe conditions are ripe for an active storm season.

New York-based Fitch Ratings Ltd.'s annual hurricane season desk reference guide echoes this forecast. "Forecasts for 2008 call for an above-average hurricane season," says Donald Thorpe, senior director, Fitch Ratings. Fitch reports that 2008 follows a season in which there were little or no hurricane losses for most insurers. In fact, 2007 was the second consecutive year in which high levels of hurricane activity were predicted and insured losses were minimal.

Sources: AIR Worldwide Corp., The Wharton School and INN archives

Exclusive content available only on InsuranceNetworking.com  

Register or login for access to this item and much more

All Digital Insurance content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access