Dr Robert P. Hartwig talks to lloyds.com about lessons learned from superstorm Sandy.
With the clean-up along the US north-eastern seaboard still underway, super storm Sandy was central to discussions at the 2013 Property/Casualty Insurance Joint Industry Forum, held in New York City last month.
With loss estimates currently in the region of $25 billion, the global insurance industry will supply most of the funds needed to help put homeowners and businesses back on their feet after what proved to be the most costly insurance event in the world last year.
“Not only is the industry united in its commitment to pay every dollar that is due on every policy affected, but two months on the industry is financially rock solid, ” said the Insurance Information Institute’s (I.I.I.) president, Dr Robert P. Hartwig, in an interview with lloyds.com. “That is a testament to the industry’s enduring financial strength at a time when other financial institutions like banks are still hobbled.”
The increasing frequency and severity of weather events is a serious cause for concern, according to panellists at the forum. “It [Sandy] probably also highlights the whole issue that the industry is trying to deal with, which is ‘what is the new normal?’ as far as level of catastrophe losses, ” Vincent J. Dowling, managing partner, Dowling & Partners said at the meeting. “The last few decades, the losses relative to premium continue to increase, and we have not had ‘The Big One’ yet.”
Panellists agreed that another lesson from Sandy was that insurers need to step up efforts to educate consumers about flood insurance. Before Sandy hit last year, many consumers and business owners in the north eastern seaboard of the US didn’t realize that the standard homeowners policy doesn’t cover storm surge.
“A theme that came out of the meeting is that the industry has the products available to help businesses with situations like this, but insurers need to increase awareness of these products, ” Dr Hartwig, who addressed the forum, said. “Let’s make it clear that the cost of these risk transfer solutions is worthwhile to businesses.”
Sandy’s surprise downgrade
A big surprise for the insurance industry was the declassification of Sandy from hurricane status after landfall, Dr Hartwig told lloyds.com. The downgrade in the storm’s status from hurricane meant that policyholders’ hurricane deductibles did not apply, even as the standard deductibles were applied.
“The additional cost to insurers as a result of the reclassification is around $2.2 billion, ” he said. “Insurers and reinsurers now have to assume that in the future hurricane deductibles may not apply to these type of lower strength, albeit costly storms. The industry may have to review policy language and/or or pricing as a result or even rethink their exposure to the coast.”
Dr. David Sampson, president and CEO of the Property Casualty Insurers Association of America, pointed out that amid all of the industry’s focus on Sandy and its repercussions, policymakers continued to weigh the enactment of new laws and regulations which would probably make it harder for insurers to operate.
“The industry has proven strong and resilient, with continuing near record capital, and surplus and almost no global failures, ” Dr Sampson said. “Study after study has concluded that insurance activities are not systemically risky.”
Frank Nutter, president of the Reinsurance Association of America, moderated a high level panel that included Lloyd’s CEO Richard Ward, Munich Re CEO Nikolaus von Bomhard and XL Group CEO Michael McGavick.
The CEO panel discussion revealed diverse opinions over the best way forward for regulation in the US: state versus federal – or an optional path, Dr Hartwig said, and also considered the ramifications of global regulatory convergence. “These are significant issues in the US and the industry reflects a wide range of views, ” he said.