The damages and loss of property from the hurricanes that recently hit Texas and Florida are already estimated at hundreds of billions of dollars. Thousands of small businesses without insurance are expected to never recover. Even those with coverages may take years. Facing enormous claims, one would think that insurance industry executives would be stressing.
Insurance companies cover businesses and individuals when disasters strike. That’s their value. But in the past few years there have been fewer big disasters. When there are fewer disasters people start questioning the value of having insurance. Demand has stagnated and so premiums have been flat. Competitors, smelling blood, have entered the field offering discounted rates. All of this has contributed to profit challenges for existing insurers.
But not anymore. The recent big disasters in Texas and Florida will surely require big insurance payouts. But with these payouts comes an opportunity: the chance to finally increase premiums.
“Almost in a perverse way, when you look at the more medium term, [the hurricanes] can benefit the sector post all of this,’ said Inga Beale, the chief executive of Lloyds of London in this Sunday Times report.
According to Beale, the lack of catastrophic events has encouraged “pension funds and other investors from outside the industry to dabble in offering protection against hurricanes and floods.” She expects that this latest series of disasters will likely scare away these new entrants, allowing existing insurers to hike their premiums. She has “no concerns” that existing insurance reserves will be ample enough to cover the expected payouts, particularly when federal and state payments are taken into account.
That’s good news for the insurance industry. But for the tens of thousands of small business affected by these hurricanes next year’s likely increased insurance premiums will only add to their woes.