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In recent years, weather-related events including hurricanes have become more catastrophic, with storms including Idalia and Ian causing costly damage in the United States. This year, the National Oceanic and Atmospheric Administration (NOAA) is predicting an active Atlantic hurricane season, which lasts from June 1st through November 30th. The possibility of more damage has both insurers and consumers preparing with parametric insurance, climate-resistant buildings and state intervention.
Aon, a global professional services firm, recently released a Global Catastrophe Recap report, which analyzed natural hazard activity worldwide. The 2023 report revealed that global insured losses from natural disaster events reached $88 billion by the end of Q3 2023, driven by severe storms in the U.S. and Italy, including the Maui wildfires, which proved one of the deadliest and costliest in U.S. history.
Read more: 5 ways insurers can be proactive ahead of a hurricane
Amidst climate risks, the Agency Forward survey from Nationwide surveyed commercial property stakeholders about property protection. The survey reports that 36% of property stakeholders, with 59% in hurricane-risk states, have experienced a weather event and suffered from related damage within the past five years. Of these respondents, almost half, 49%, said that their recovery took between four to six months and cost them between $20,000 and $50,000.
"Modernized standards, such as IBHS's Fortified construction standards, will better account for today's climate risks and minimize the risk of storm damage to businesses," Mark Berven, president and COO of Nationwide's property and casualty business, recently told Digital Insurance. "To share a residential example, of the 17,000 homes in Alabama that were affected by Hurricane Sally in 2020, 95% had little-to-no damage thanks to the Fortified roofs they received with help from the Strengthen Alabama Homes program. It's time to provide this enhanced safety and resiliency to communities across the U.S., but it will take teamwork. Building codes mostly fall under the purview of state and local governments, so it will require involvement from carriers, trade associations and insurance agents to lead these efforts at the national and local levels."
For consumers, an insurance solution for natural disasters that provides immediate disaster response — as well as a supplement to cover situations that traditional P&C insurance excludes — is parametric insurance.
Parametric insurance is beneficial in regards to hurricanes as there can be measurable metrics that can enact immediate coverage. "The foundation of parametric insurance lies in its predefined triggers, which are based on measurable and verifiable parameters," said Siddartha Jha, founder and CEO of Arbol. "For instance, a hurricane policy might use wind speed or barometric pressure as triggers, while an agricultural policy could depend on rainfall levels or temperature measurements. These parameters are sourced from reliable and unbiased data sources, including satellite data, weather stations, and seismic monitoring networks. The objectivity of these data sources ensures a transparent and fair process, where both insurers and insured have clarity on the conditions for payout."
Read more: As climate catastrophes increase, here's how employers can prep for hurricane season
Due to the uptick in hurricanes and damage, states may be forced to intervene in private insurance in the areas affected the most. Whether and how states "invest in adaptive infrastructure and utilities, including needed adjustments to property casualty insurance mechanisms, will determine medium- and long-term borrower downsides from climate changes as they occur," a report from Municipal Market Analytics says. "States (and, of course, local governments) showing proactive (or even effective reactive) management of these challenges will present a better portfolio of local government borrowers to the municipal market and deserve a larger allocation of investor dollars, all else being equal."
Read more about how insurers are preparing for hurricane season here.
