Natural disasters last year in the U.S. cost insurance companies about $58 billion, making it the second most expensive year ever, bested only by 2005 when hurricanes Katrina and Rita smashed into the Gulf Coast.
Far and away the biggest factor in the total was Storm Sandy, accounting for more than $25 billion, or 43 percent of the year’s total, in insurance claims on damaged homes, cars and businesses, according to a new report released Thursday by Munich Reinsurance America, Inc.
The so-called Frankenstorm, Sandy, made landfall Mon., Oct. 29, killing more than 110 people, flooding the coastal Northeast, blowing down houses, ripping up roads and toppling buildings in a wide swath of devastation across the eastern U.S. In the northeast, it was the worst storm to hit since the Great New England Hurricane of 1938.
Sandy resulted in about 1.38 million insurance claims — 71 percent for damage to homes; 17 percent for damage to automobiles and 12 percent for damage to businesses, said Robert Hartwig, an economist and president of the Insurance Information Institute, a New York-based trade group and research entity.
Last year didn’t have many natural disasters, but the ones that hit were expensive. For example, there were only 1,105 tornadoes in the U.S., which is less than any year from 2005 to 2011.
“While the total number of events are lower than seen in 2011, they still resulted in the second largest loss total on record,” Carl G. Hedde, head of Risk Accumulation at Munich Re America, said in a conference call Thursday with media.
In addition to Sandy, drought across much of the nation cost insurers an estimated $15 billion to $17 billion in agricultural losses. Insurers paid an estimated $2 billion for damage related to a “derecho,” a straight-line windstorm, with thunderstorms in late June that stretched from Indiana to Maryland. The industry is still estimating the cost of a tornado outbreak on Christmas Day and Dec. 26 in the southern U.S. Also, wildfires charred massive stretches of land in Colorado, New Mexico and elsewhere, but the insured losses were estimated to be $595 million total, far less than a major hurricane.
Insurers, on average, paid $27 billion each year to cover insurance claims related to hurricanes, tornadoes, wildfires, earthquakes, hail and all other natural catastrophes in the U.S. between 2000 and 2011, according to Munich Re’s research. The average is inflation-adjusted and represented in 2012 dollars.
The worst year was 2005, at a cost of $70.8 billion in insurance claims paid by property-casualty companies such as The Hartford Financial Services Group, The Travelers Cos. and Chubb Corp. and others in an industry that employs thousands of people in Connecticut.
Hurricane Katrina, alone, cost $46.6 billion, adjusted for inflation in 2011 dollars, the most recent estimate available from the Insurance Information Institute.
While 2012 was the second costliest year to insurers paying for natural disasters in the U.S., it was the third costliest to insurers if you consider all catastrophes around the globe, said Ernst Rauch, head of Munich Re’s Corporate Climate Center.
The most expensive year, globally, for insurers was 2011, at $121.8 billion, followed by 2005, at $118.5 billion, according to Munich Re. Last year was a distant third at an estimated $65 billion.
Some of the big disasters that happened in 2011 were a March earthquake and tsunami that hit Japan, a February earthquake in New Zealand, a very active and violent tornado season in the U.S. that included a June 1 twister in Springfield, Mass., and floods in Thailand.
Insurers are in a “quiet period”, the days after a financial quarter has ended but before the companies have reported quarterly earnings. Several companies declined to comment on catastrophe losses because of the quiet period.
The insurance industry refers to the amount it spends on claims related to a natural disaster as “catastrophe losses,” though the industry is highly regulated and companies are required to maintain financial reserves from premiums to cover claims. Travelers estimated that its losses related to Hurricane Sandy were $650 million after tax and reinsurance, and $1.1 billion before tax and reinsurance.
Allstate Corp. said on Nov. 28 it estimated losses related to Sandy to be $1.08 billion before tax and net of reinsurance.
The Hartford said Dec. 11 it expects Sandy to cost the company $350 million in total claims, before tax and net of reinsurance.