(just kidding Mr. Jain)
From The Wall Street Journal, August 26:
Insurance companies are struggling to keep up with economic growth, population shifts, inflation trends and the most unpredictable variable of all: the rising prevalence of natural disasters—big and small
Will America dodge another bullet? Years often pass without a major hurricane making landfall, and 2023’s storm season, set to peak in a couple of weeks, may be no different. What is different is the potential financial shock if one does hit.
The National Hurricane Center issued its first-ever tropical storm watch for Southern California this month—a reminder that extremely unlikely events can, and do, happen. Another unlikely event occurred just over 30 years ago, when Hurricane Andrew landed in southern Florida during what was an otherwise light season.
At the time, Andrew was a wake-up call for the insurance industry, resulting in the rise of new kinds of reinsurers—firms that backstop other insurers—relying on computer models to price extreme risks. But were the same storm to repeat this year, it might cause a far bigger disruption. That is because a combination of climate change, economic and population growth, and inflation of all kinds has challenged insurers’ grasp of what exactly “the worst” entails.
Back in 1992, the Category 5 storm slammed into Florida south of Miami and cost insurers the then-scarcely-believable sum of about $16 billion. Simply adjusting for consumer price-index inflation, that translates to about $35 billion today. Yet much more than how far a dollar goes has changed in three decades. Construction costs have inflated. Florida’s population has boomed. Property values have risen enormously. Claims litigation has become more expensive.
Now, industry estimates peg a replay of Andrew today at two or even three times the inflation-adjusted number, potentially adding up to a $90 billion or even $100 billion insurance loss. And that is before considering what might have happened had Andrew—or Hurricane Irma in 2017, if it had continued on an early course and intensity—actually hit Miami directly, with modeling firm Karen Clark & Co. estimating that insured losses in such a scenario could be $200 billion.
That challenge is part-and-parcel of what extreme-risk insurers do. But then there is what is happening at the other end of the risk curve, with events that historically are less severe but more frequent. So-called “secondary” perils, such as Hawaii’s wildfires, a surge of U.S. thunderstorms or Texas’ recent winter storms, have become either more common, more costly or both in recent years....
....MUCH MORE
Earlier:Hurricane Watch: Franklin Becomes First 2023 Cat. 3; Tropical Storm Idalia Intensifying Toward Cat. 1
