Winds of Change

By Jeffrey Hubbard

This fall, we again witnessed enormous destruction in the U.S. that can only be compared to the attacks of September 11th. Again, a single event claiming many lives will result in huge losses for insurance carriers.

Katrina’s arrival not only brought wind and water to the Gulf Coast, it unleashed a number of potential environmental claims that will ultimately impact the price, availability and underwriting of environmental insurance.

Why Katrina Will Impact Environmental Insurance
After September 11th, workers’ compensation insurers started to track companies that had a substantial number of employees in one place, just like commercial property insurance companies have for years tracked accumulation of property values. This is simply to make sure that one event would not result in a level of losses that would threaten the carriers’ solvency or expose the insurance company to a large number of claims from a single event.

This is a concept referred to in insurance as “concentration of risk.” Typically, insurance companies have managed this risk through the underwriting process or by excluding the peril that could create a catastrophic loss.

However, the environmental insurance industry did not consider this accumulation of risk from natural disasters.