Changing our view on storm activity becomes financially important
Is the insurance industry prepared for the upcoming storm season? This is the question the industry is asking as it braces itself for what may well turn out to be another hectic period for insurers.
There are a number of factors we need to take into account when answering this question. Is climate change really making a big impact on the industry, is urbanisation playing as big a role as climate change, and what type of losses can the industry expect if the storm season is as bad as it has been over the last two years?
Coming to terms with losses
After two years in the dark, we can finally report on the actual financial impact of the 2012 and 2013 hail storms. Addressing an IISA Strategic Risk Forum breakfast in May, Strategic Risk Forum Member Pieter Visser from AON Benfield, points out that the financial impacts were significant.
Visser pointed out that the estimated market loss for the hail storm in October 2012, which includes those of insurers and reinsurers, came to R1.02 billion while the estimated market loss for the hail storm in November 2013 was R1.4 billion. These losses were spread over the property and motor industries.
The motor and property industries were the two industries that suffered the most in the hail storms. “It will take the industry a long time to recover from the 2012 and 2013 hail storms. In terms of the motor book, it will take the motor industry four years to recover from the 2012 hail storms and 10 years to recover from the 2013 hail storms. In terms of the property book, it will take the industry eight years to recover from the 2012 hail storm, while it will take the industry 18 years to recover from the 2013 hail storm,” says Visser.
What can we expect this year?
It is difficult to predict weather patterns. In fact, scientists have spent significant amounts of money to prefect the art of weather prediction, and they are nowhere close to achieving this. But one thing that scientists can agree on is that extreme weather events are going to happen more frequently.
The fact that the world is going to experience between three and four extra days of summer over the next few years is a major contributor to these storms. Converging fronts are also pushing storms together which increases the size and ferocity of the storms.
Speaking at the Discovery Insure Financial Planning Summit, climatologist Simon Gear points out that if we have to collate the weather information what we have gathered in South Africa and then compare it with information gathered from international insurance markets such the US and Europe, we can see that events, which were once considered one in a hundred year events, are happening more frequently.
Inland and coastal are being affected. Coastal areas are more prone to wind waves. Wind waves are waves which occur out at sea, but are driven by strong winds which blow behind them. If there is a strong enough wind, these waves can cause significant damage if the waves are close to urban areas (a piece of coastline which does not have a beach).
“These waves are often stopped by a wave wall which is built just before the road or houses that the wave would affect. These walls are prone to erosion because of the constant pressure of the waves, and research done in the US shows that wave walls are currently being eroded at a higher rate than five years ago because of the increased prevalence of wind waves,” says Gear. He added that the insurance industry didn’t need to be reminded of the destruction of the promenade in Balito Bay on the northern KwaZulu-Natal coast after a wind wave hit the area during a spring tide.
“El Niño is also having an effect on the insurance industry as the rainy season becomes wetter than usual with more days where it is likely to rain,” says Gear. This was highlighted in March this year where excessive rains on the Highveld and Limpopo caused major flooding which resulted in significant devastation.
The great urban migration
Another factor which has had a significant impact on the insurance industry is urbanisation. The use of Big Data makes it possible to track urbanisation. This means that insurers will know where their policyholders stay and possibly where their policyholders are at any given time if telematics comes into play.
“We can then send out predictive warning sms’ to policyholders telling them of storm activity and policyholders can then take the necessary precautions. The industry has employed this extensively this year and it has had a positive effect,” says Visser.
Editor’s Thoughts:
When one looks at the recovery periods that Visser pointed out during his presentation at the Climate Change Breakfast, one can feel for the industry and understand the pressure these events put them under. A key point to think about is the industry’s ability to deal with this if these one in a hundred year storms become an annual event. Have all your clients hail claims been finalised? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
