The Weather and The Insurance Industry Essay

The Weather and The Insurance Industry Essay

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Weather plays a large role in the Insurance Industry. This is especially true with insurance policies regarding home and business insurance. Weather is an important factor on insurance cost in the United States and the world. The insurance industry will continue to change as climate change accelerates.
AIG published a report that discussed climate change and how it is affecting insurers. Research has showed that the global temperature average has increased. Most scientists believe this is due to growing concentration of greenhouse gases being released into the atmosphere. Scientists believe that temperatures have been going up for millennia, but that this current increase is primarily because of Fossil Fuels. This increase is called global warming. (http://www.aig.com/Chartis/internet/US/en/IPG%20Real%20Estate%20Climate%20Change%20Paper_tcm3171-488915.pdf)
AIG estimated in 2011 that property/casualty insurers were exposed to over $100 billion dollars in global natural disaster related losses. 99 weather-related disaster declarations were recorded in the US in 2011. (Ibid) This shattered the 2010 record by 18 declarations. This represents an almost 20% increase in declarations. In 2012, 34,000 local record high temperatures were set in the US and numerous large-scale heat waves occurred. (Ibid) 2012, was also the same year Hurricane Sandy occurred. 2012 is arguably one of the most extreme weather years on US record. (http://www.nytimes.com/2013/01/09/science/earth/2012-was-hottest-year-ever-in-us.html?_r=0)
According to Peter Hoppe from Munich Re,“ North America is at greater risk than other continents for extreme weather events.” (Munich Re: “2011 Natural Catastrophe Year in Review” by Peter Hoppe) Over the last three decades,...


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... warming. This new DRM proposed would allow each insurer a clearer picture of risk management that would help both reduce risk and increase revenue as well as protect the consumer.
The risk model proposed has three layers: high risk, medium risk and low risk. The high risk is a situation with a low probability of occurrence, but could potentially cost the insurance industry billions of dollars if it occurs. These types of disaster typically require additional help in the form of public assistance or private donors. Medium risk would typically involve a disaster where risk financing takes place. This is usually in the form of using a reinsurer- to give some of the risk to another insurer, self-funding where the consumer leaves aside a set amount of funds to protect against a disaster, or risk pooling where a bunch of insurance companies pool together the risk.

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