Climatic catastrophes are happening more often, straining both governments and insurers in paying for repairs.
In 2011, the National Center for Atmospheric Research determined that weather-related costs for the United States government averaged $485 billion per year, which translated to 3.4% of the economy. And those numbers did not include extreme weather events or disasters.
The costs of weather-related events are putting financial pressure on municipal, county, state and federal governments as well as insurance companies that cover weather-related damage.
Although global warming as a product of human interaction remains a controversial topic to some, there is no question the planet is in a warming trend. Droughts, heat waves and heavier precipitation events are more frequent and can lead to unexpectedly high costs related to damage.
In 2012, Ceres, a nonprofit group advocating for sustainability leadership from business and investors, issued a report entitled “Stormy Future for U.S. Property and Casualty Insurers,” and made recommendations for insurance, regulators and investors to consider climate change risks.
“The report makes clear that extreme weather losses are escalating and pose enormous challenges for U.S. insurers that they should pay far more attention to,’’ said Mindy Lubber, president of Ceres.
“Climate change is a game-changer for the models that insurances have long relied on,’’ said Mike Kreidler, Washington State Insurance Commissioner.
The National Climatic Data Center lists 123 weather-related events from 1980 to 2013 in which overall damage costs at least $1 billion, and that includes the tornado in Oklahoma earlier this year. As of July 22, almost $32 billion in physical and economic damage had been done in the United States in 2013, according to the Wall Street Journal and the NCDC.
In May of 2013, Allstate reported paying out $373 million before taxes in weather-related insurance costs covering seven events, the Chicago Tribune reported. In April, the amount was $216 million.
Although the federal government usually pays about 75 percent of damage costs incurred by local governments, it can take many months to see that money, and insurance companies are able to respond more quickly.
Swiss Re, the global reinsurance company, said the global insurance industry paid $36 billion worldwide from natural catastrophes or man-made disasters, an increase over the previous year of 34 percent. Swiss Re was one of the global companies who met with U.S. Senators Thursday of last week to discuss the effects of weather patterns on the insurance industry, suggesting tax incentives to homeowners to help them protect their property from new and unusually strong weather-related catastrophes.
ReInsurance Association of America President Franklin Nutter told the Senate Environment and Public Works committee of Congress “the industry is at great financial peril if it does not understand global and regional climate impacts, variability and developing scientific assessment of a changing climate.”
The Insurance Bureau of Canada recently revealed that some insurance companies in that country are doubling the deductible for weather-related claims as a guard against financial exposure.
The NCAR estimates that the mining industry in the U.S. is the most affected industry, with 4 percent in variation of net income based on weather, while agriculture has 12 percent variation. Most trade and services are relatively unaffected, the NCAR said.
The problem that exists in setting new standards is that the weather remains unpredictable and setting guidelines based on damage would be difficult to alter in a way that properly reflects new weather patterns.
Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for www.nba.com. He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.
In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.
McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.
McDill is the father of four children, and an active fan of soccer, Jimmy Buffett and all things Disney.