Global disasters affect your premium – After the first 11 months of 2009, it is being reported that global disasters are less frequent and less severe than last year.  And catastrophe (“cat”) losses paid for by insurance, are also down significantly.

That’s good news for those of us paying premiums on any insured property.  Here’s why:

When you buy an insurance policy, every dollar paid is “pooled” to respond to claims.  In other words, the premiums of the many go to pay the losses of the few.

What is not clearly understood, is how disasters in the far reaches of the globe can affect our premiums in Canada.  Canadian insurers are part of the complex web of financial inter-dependence of which all global insurance companies are a part.

The financial meltdown of 2008 demonstrated the potential downside of that model; but the corresponding strength is that risk is spread to insurers around the world.  This gives greater certainty that insurers can survive a “cat” loss. It also means that a small chunk of premiums paid in Ontario, can be used to pay for damage in places half a world away.

Natural and man-made “cat” losses in 2009 took approx. 12,000 human lives and US$52 billion in economic losses.  Of that, only US$24 billion was insured.

Compare that to 2008 when 208,000 died in catastrophes (including 70,000 in the earthquake in China, 3 months before the start of the Beijing Olympics) with US$50 billion in insured claims.  The worst year on record remains 2005, when US$80 billion was paid, largely as a result of hurricane Katrina and her 2 ugly sisters – Rita and Wilma.

But don’t expect that to translate into a premium discount any time soon.  The general direction over the last 2 decades has been an upward trend – and for that we all pay.

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This entry was posted on Friday, December 4th, 2009 at 9:42 am and is filed under General, Property. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.