Points of View: Insurance
This week I have been looking at the unfolding 2017 hurricane season and the effects that Harvey, Irma and Maria could have on the US economy and the broader insurance sector. These events have caused devastation across the Caribbean, Texas and Florida. The financial impact that they will have is difficult to judge this early on. However, total losses are expected to be between $80 and $125 billion. Over the short term there will be a negative impact to the US economy. US jobs data has already shown that the number of jobs created by the economy has contracted for the first time since 2010 and the hurricanes have been seen as a large contributor. However, economic activity is expected to return as insurance policies pay out, property is rebuilt and damaged items such as cars are replaced.
Closer to home the impact will be felt by Lloyd’s Insurers, the London based, global insurance market. They have estimated that Harvey and Irma will cause around $4.5bn in losses to their members. This is expected to lead to an underwriting loss for the year but CEO, Inga Beale, has stated that this is to be expected in such events and that “this is what we are here for”.
Natural disasters are both good and bad for those insurers covering this market. On one hand, they will suffer some large capital pay-outs in the short term. On the other hand, such events inevitably help push future premiums up. This is especially relevant at the moment given that the lack of disasters in recent years has driven premiums down to a level that has caused problems in the market.