Insured losses

Great claims

Insurance losses from catastrophes

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Wow, America has a lot of insurance.

A global chart and American chart would be virtually identical, except for the Lothar storm.

The devistating 2004 tsunami barely registers a blip on the insurance radar.

@ jgomeza
Insurance companies total their similar policies together by type.
Then they buy a re-insurance policy that pays if the total of all claims exceeds a given amount.
This step can be repeated, with a higher threshold, and lower premiums, so a re-insurer limits his risk.
The end holder of risk is usually on the Lloyds of London list called the "Names". Each risks all he owns each year. But usually the names just collect a tax free check each year.
But in a bad period, with un-anticipated claims, like asbestos claims, fortunes can be lost. It is a bit like playing roulette in reverse, where you bet nothing each time, and win 35 out of 36 times, but if it hits 36 you lose big time.
Lloyds only accepts the super rich for this game.


A couple of points about insurance and reinsurance for those that don't quite understand how this all works:

Insurance companies can make profits two ways. First, there are underwriting profits that occur when the company takes in more premium for all their policies than they pay out over a given period. Very few property/casualty companies that insure catastrophic property loss that the article references make any underwriting profit. In most cases, they pay out more money in claims than they take in premiums (these results are published annually and can usually be found on carriers' websites, annual reports, and rating sites like AM Best).

The second way and primary way an insurance company makes a profit is through investment income earned by investing the premium they take in for policies written in a variety of short-term and long-term investments. So the common claim that insurance companies, at least in regards to property/casualty insurance, are charging policyholders exorbitant premiums and raking in the profits is simply untrue. In most cases, the premiums are underpriced for the risk, and the insurance companies compensate on the back-end through investments.

The key that most people fail to understand is that profitability in the insurance industry is a good thing for both policyholders and the general public. Insurance carrier's policyholders are a lot like shareholders investing in that company, but instead of sharing equity and dividends, they are sharing risk in a giant risk-pool. Much like shareholders want the companies they invest in to be profitable, policyholders should want their insurance companies to be profitable, both from an underwriting and investment standpoint. Unprofitable or financially weak companies that are underpricing risk are much more likely to go bankrupt, especially when a catastrophic event such as a hurricane or flood occurs, meaning thousands of policyholders could be left with unpaid claims.

Reinsurance is simply a mechanism for standard insurance companies to share their exposure to catastrophic risk with other entities (re-insurers). Again, this is a good thing for both policy-holders and the general public, because it means that when a catastrophic event occurs that results in billions of dollars in damages, the catastrophic risk is spread and insurance companies will be in a much better position to remain solvent and pay out claims.

Another Innocent Bystander

Is this graph rebased for inflation? And how does it compare with the amount of insurance brought?

If both those are controlled for the recent spikes in weather related claims are a bit worrying for the insurance business. If its a trend they may have to take it into account. How much research into global warming effects is being funded by the insurance companies, any ideas?


@ Tenpenny:

By the looks of it, you must be pretty high-up, in the insurance obelisk, to go all out in the defence of these money-making juggernauts.

I don't know about today, but till the 2008 global meltdown, insurance companies were, almost without exception, raking in billions in profits, year after insuring(scamming?) year..

So what gives??

Another Innocent Bystander




Greenforce is mistaken, at least in part. I live in St. Petersburg, Florida, which is on the coast and my homeowners insurance costs are not subsidized at all. The cost to insure my house has risen from $400 per year in 1995 to over $2800 per year today. I have had no claims and no hurricane has hit St. Petersburg since the 1920s, although we have been threatened several times. The insurance company mandates a hurricane deductible of 2% of the value of the house and will apply that anytime they can claim that damage was caused by wind, whether there was a hurricane then or not (my father in law had this applied when a tree branch fell on his roof, and there was not even a high wind that day). If the insurance companies could make a profit in 1995 on $400, why can they not make a superior profit today on $2800. There have been no hurricanes in Florida for several years recently. Do these companies not put money aside to cover future claims? I also remember that many of the people who filed claims in Louisiana and Mississippi after Katrina had their claims denied by the insurance companies, so I question if the figures in the article represent what was actually paid out, rather than claimed.


Insurance and banking go together. Insurance makes risk affordable and banks finance risk.

Without these entities progress would become imperceptibly slow.

As always there are those who find profits evil. Such hate cannot be reasoned with.


How come these could insurance losses?

How about the premiums paid out to the insurers?

I think at the end, the insurance companies still make a LOT of money based on the premiums they charge to hundred of millions. Otherwise they would being out of business long time ago ....

It would nice to know how much money they are making instead, despite the fact that they are covering some cost of the total cost from these catastrophes.


@ speckledhen - thanks

Yes its true, and Americans also PAY for the said insurance. Once any claim is made, either the insurance provider wraps up business and closes its doors or drops coverage for certain events or totally jacks up the premium.

The tsunami scenario is understandable, the graph is based on claims made.


Does anyone know how insurance companies back-up the insurance they give?
I would appreciate if anyone does because there´s a lot of them re-insuring with foreign companies, giving the risk to others (maybe in derivates or similars).



Don't fret for the insurers.

Their business model take into account 'good' years (when few disaters hit, but their pool of insureds pay their premiums) against 'bad' years (when more disasters hit, but their insureds pay their premiums). The long term average allows for high salaries and luxury offices and travel perks. Insurance actuaries have calculated multiple options for profit.

It is the poorly informed or those whose voices have been purchased that believe the insurers claims that high premiums are needed.


I am not high up in insurance, just working at the fringes. And what they say is right. Insurance is actually the most effective and efficient form of relief for disaster we have. I was talking to the CEO of World Vision about it a while ago, and he agreed and said they were looking at better ways to start up micro insurance in developing nations. Everyone contributes, those who face disaster are covered. I have been involved with the claims of last year's catastrophic bush fires in Australia, and have watched the houses being rebuilt. Maybe it takes that to happen for you to appreciate the value of it.


Would be interesting to see government spending included here. Many of those disasters also received copious amounts of governmental (and non-governmental) aid. The attack on the WTC would include the cost of the continuing war in Afghanistan too!


"Americans also PAY for the said insurance."

True, but not willingly. The insurance in coastal hurricane zones is federal or federally subsidized; commercial insurers won't touch the stuff because no one can actually afford to live there. It's the equivalent of dumping money in the ocean.


what a **** - losses? its suppose to be like this, people are paying for insurance they should get they service.



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