Insurers prepare for impending disasters
Some new perils are covered by insurance and others are existing ones that have been magnified in the 21st century.
With hurricanes, wildfires, tornadoes, floods, volcanic eruptions, earthquakes, cyber warfare and drought already making life difficult for insurers and reinsurers, they hardly need a new type of catastrophe to eat away at their capacity. Yet, every day it seems that some new type of disaster hits, causing insurers to scramble to find coverage and assess damages.
At least once a year there will be a major explosion at some chemical, petroleum or food processing facility that will destroy half a town. If the federal government permits the shipment of liquid natural gas in DOT113 tank cars through urban areas, there may be even more such devastating accidents. Also, at least annually, a large cargo or passenger ship will hit rocks and send the Lutine Bell* at Lloyd’s ringing as the ship rolls on its side spewing oil and pollutants, or a new model aircraft will be shown to have fatal flaws, creating financial problems in the aviation industry.
These are not new types of casualties, just ancient ones enlarged by a complex 21st century.
Are there new types of disasters that defy the underwriters to classify and the reinsurers to consider in treaties? Some new perils are closely related to global warming but are uninsurable, at least currently. One is the millions of tons of plastic and other waste products dumped into our oceans, combined with the warming of acidic water that will seriously poison and impact the fishing industry’s worldwide food supply. How does one adjust such a loss were an identifiable covered peril to found? The damages are unemployment and the loss of a valuable source of food, which, in turn, leads to the international migration of people who relied on such fish.
Scientists tell us that the plastics in the ocean have dissolved into nanoparticles that have been consumed by fish and then humans and that most of us currently have about five grams of plastic in our bodies ꟷ about the same amount as a plastic credit card.
Where is the insurable peril for that? Stopping the consumption of fish is hardly the answer as plastics and other pollutants are already in other sources of food.
The water disaster
Flooding and rising oceans, along with pollution, are not the only water-related catastrophes that will create disasters worldwide in the coming years. Perhaps a greater calamity is already at hand in the depletion of aquifers.
When ancient bodies of water that existed deep below the surface of the earth are pumped out to irrigate crops or water landscaping and golf courses, there’s no way to replenish that water. Even if the land above the aquifer was under a constant flood, it would take decades for the water to trickle down and supplement any remaining water. As the water is pumped out, the empty cavernous area beneath becomes unstable, resulting in sinkholes, which are insurable sources of damage. Any area with a limestone base, such as Central Florida, can collapse without warning.
Earthquake is an insurable peril, at least in some states, but analysis of causation suggests that another potential source of disaster is in the offing: the result of “fracking” for the release of gas and oil deposits deep beneath the surface of the earth. Such earthquakes have caused damages in the Southwest and might trigger a major quake elsewhere. It is but one aspect of the world’s need to wean itself from fossil fuels to prevent further global warming.
There is certainly nothing new nor emerging about the risk of earth movement loss. Some related perils are insurable, while others are not. Geologists predict it is only a matter of time until a magnitude 6.7 to 9.5 earthquake strikes a major urban area; it will most likely, but not necessarily, be on the West Coast. It will interrupt the cyber world located there, and that, in turn, will affect the entire world. Where will the millions of people go, and what can they do until their cities are rebuilt? How much “additional living expense” coverage will be needed?
Finally, what can insurers do about the totally unexpected astral event — the giant meteorite or solar radiation storm — that blots out communications or triggers dust storms or tsunamis? There will be survivors, but finding coverage for the loss may be difficult. The ever-changing 21st century will challenge underwriters.
Ken Brownlee, CPCU, ARM, (kenbrownlee@msn.com) is co-author of “Catastrophe Claims – Insurance for Natural & Man-made Disasters” published by Thomson Reuters West.
*In 1799, the British frigate Lutine foundered near the Dutch coast with a cargo of gold. Salvage attempts failed, and only its bell was saved. It was the largest claim Lloyd’s of London had paid up until the 20th century. Whenever a ship sank, the bell, which hangs at Lloyd’s, was sounded to alert the underwriters.
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