Last week, we explored how likely it is for insurance to be disrupted in 2018. It sounded rather unlikely.
All the trade groups are behind it, including Big I, PCI, NAMIC, and others.
But the main reason for excitement is the benefit to society – there remains an enormous Protection Gap on U.S. flood. Every time we read about big floods, one of the statistics is how many damaged homes and buildings were NOT covered for flood – in the Baton Rouge flooding in autumn 2016, it was about 80% of damaged property that was without coverage. Let that sink in…Louisiana (home of some of the most famous floods in history) had only 20% coverage for these floods. It is crazy.
Critics of the NFIP frequently point to its historical deficit ($23B, and counting) as the most damning evidence of its failure. From society’s perspective, it is this lack of coverage for property owners that makes it a failure.
So, the passage of the flood bill is an important first step to fixing this messed up system. But only the first step – ensuring property owners have protection from the very real threat of flooding will be the success that matters. For that to happen, flood insurance needs to become a peril covered by all property insurance.
“An ambitious amateur will rise above a complacent master.”
― Matshona Dhliwayo
Complacency will lead to major financial loss, or…The need to close the Protection Gap
Last month I watched a webinar from Advisen Ltd. titled Natural and Man-Made Catastrophes in 2015 - Calm Before the Storm? Swiss-Re was the sponsor, and it featured analysis by two distinguished gentlemen: Thomas Holzheu, Chief Economist Americas from Swiss Re, and Robert Hartwig, President of Insurance Information Institute.
If 26,000 casualties last year aren’t enough, there is some fascinating loss information and some frightening predictions if we assume that status quo continues to be the norm.
Mr. Holzheu started the webinar with results from Sigma, which is a long-term study of Cat losses globally. Some of the most salient points included:
Usually financial results are black and white, positive or negative, good or bad. However, the analyses of the P & C underwriting results from 2015 are coming in and looking decidedly gray – neither good nor bad.
According to an article in Insurance Journal, “...net written premium grew by 3.4 percent in 2015 versus a 4.2 percent hike in the previous year.” Further, “...the combined ratio grew to 97.8 from 97 in 2014. In 2013, the figure was at 96.2. As the ISO/PCI report points out, this is the first time the combined ratio was under 100 three years in a row since 1971-1973.”
On the one hand net premium grew, and the combined ratio was still in the black. Not only that, it’s the first time in over 40 years that there have been three consecutive years of positive combined ratios. Great! Right?