The headline is tame — "U.S. insurers rethink coverage after weather disaster payouts" — but the content could reflect poorly on P&C insurers: Reuters reports that "as weather disasters strike with more frequency, U.S. homeowners … are then hit with the unexpected loss of homeowners insurance policies as insurance companies re-evaluate their financial liabilities."
Ouch. That doesn't paint as rosy a picture of the industry as policyholders being cut checks immediately at mobile claim centers.
What are insurers to do, though, in the face of record disasters? We've reported about how more areas are open to major damages from tornadoes as populations and weather patterns shift. And in a panel discussion earlier this year, Liberty Mutual president and CEO David Long said that unmodeled CAT activity indicated that certain regions were "fundamentally underpriced." Some retrenchment is required so that the insurance industry can continue to function.
As I wrote last year, while Hurricane Irene was bearing down on the East Coast, people who choose to inhabit areas prone to serious weather events need to understand that there is a risk associated with that. The cost to insure their valuables cannot stay flat if they are in more danger. It's already happening with flood insurance.
[Read why Deloitte's Howard Mills thinks more people should consider flood insurance.]
But the insurance industry can't afford to surprise people with draconian rate increases and policy cancellations. PR is important in this case, and it may behoove insurers to take a gradual approach to extricating themselves from risky situations — even if it means a short-term loss — to avoid messy litigation and potential regulation.
Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio