COMMENT: Whole lot of shaking going on

COMMENT: Whole lot of shaking going on

The nat cat picture for 2010 is confusing isn’t it? Superficially, it was a benign year due to the absence of windstorms hitting the East Coast of the US. But as Munich Re has pointed out, a total of 950 natural catastrophes were recorded last year, nine-tenths of which were weather-related events.

The total makes 2010 the second most active year in terms of natural catastrophes since 1980, and well over the annual average for the past 10 years (785 events per year).

The overall losses amounted to around $130bn, of which approximately $37bn was insured. So 2010 is actually among the six most loss-intensive years for the insurance industry since 1980.

The hurricane season was – literally – eventful, but the tracks of most of the storms remained over the open sea: the US east coast was not hit by a single hurricane.

That was unexpected. What was also different about 2010 was the accumulation of severe earthquakes. There were four bad earthquakes: in Haiti (12 January), Chile (27 February), central China (13 April) and New Zealand (4 September).

One of the most devastating earthquakes in the past 100 years, the quake in Haiti on 12 January killed more than 220,000 people. Only the 1976 Tangshan earthquake in China claimed more lives (242,000). Whilst the earthquake in Haiti resulted in human tragedy on a staggering scale, it gave rise to only negligible losses for the insurance industry, as is so often the case in developing countries.

Five-hundred times more energy than in the Haiti quake was released by the earthquake that hit Chile just over a month later, Munich Re pointed out. With overall losses of $30bn and insured losses of $8bn, the quake was last year's most expensive natural catastrophe.

Chile is a highly developed country with very strict building codes to take account of the high earthquake exposure. As a result, there were comparatively few human casualties, despite the severity of the quake – the fifth-strongest ever measured.

We still don’t really know how much the earthquake which occurred on 4 September in Christchurch, the third-largest city in New Zealand, will cost insurers. Last time I looked it was $6bn.

Another surprise event was the eruption of the volcano Eyjafjallajökull on Iceland in April. It didn’t cost much in insurance terms but it created chaos all around the world and demonstrated the potential destructive power of volcanoes.

So what lessons can the insurance industry take away from this tableau of catastrophic events? First, don’t ever rely on hurricane forecasters. Second, don’t think that the big market changing event will necessarily be a hurricane.

Here’s a few linked thoughts.

A Rhine Rift Valley fault earthquake of magnitude 6.5 would produce total property losses in excess of Eu50bn in Switzerland and Germany; a 7.5 magnitude earthquake in Calabria, Italy would produce similar insured losses.

If Italy’s Mount Vesuvius were to start spewing lava again, it could kill or injure 21,000 people and cost insurers more than $24bn according to research by the Willis Research Network (WRN).

The Institute for Catastrophic Loss Reduction in Canada recently warned that there’s a high risk of a major earthquake striking south-western British Columbia, the large and rapidly growing region in the west of Canada that includes Vancouver and Victoria.

I could go on. But the point is, any of these ‘unexpected’ events could happen - and in the same year as a multi-landfalling hurricane season.


 

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