While increased frequency of hurricanes is nothing new in historical terms, the enormous growth in coastal population and development is dramatically increasing the potential for insured losses, according to a new paper from General Electric's GE Insurance Solutions arm.
The paper suggested that due to the demographic trends in Florida and other coastal locations, as well as the increased frequency and severity of storms, the cost of hurricanes looks set to rise.
According to GE, the industry is well capitalized and is able to withstand monster storms and earthquakes with insured price tags in the range of $60 billion to $120 billion. However, it also suggests that there is a danger that numerous events could occur within a 12-month period and place a cumulative strain on capital, leaving some insurance companies without reinsurance protection.
The paper goes on to question whether the industry’s capital providers would continue to maintain sufficient levels of support going forward if a heavy natural catastrophe season occurred during the same year as an unexpected loss such as the September 11 terrorist attacks.
Given the rising catastrophic loss trends, it is vital for the industry to keep a perspective on the high level of risk it faces, the paper concludes.