After just six months, 2011 is already the most expensive catastrophe year for the insurance industry on record, according to a ProgramBusiness.com story taken from The Guardian.

Through June 30th, 2011 is worse than the full 12 months of 2005, the previous highest on record. The devastating earthquake and tsunami in Japan, combined with the quake in New Zealand, floods in Australia and tornadoes in the eastern US inflicted losses of more than $50bn (£30.6bn) on the industry.

What does this mean to the insurance buying public?  Cat losses take capital out of the reinsurance market as well as the standard insurance markets to pay these extra-ordinary claims.  Attracting new dollars to the reinsurance market bids up the cost of money.  The higher cost trickles down to standard insurance markets through higher premiums for reinsurance agreements.  Finally, the profit squeeze on standard insurance companies produces higher consumer premiums for policies in the retail insurance markets.  

US catastrophe reinsurance rates have gone up by 10%, on average, while premiums in loss-affected areas such as Japan, Australia and New Zealand have seen much bigger increases, some in excess of 50%.  With climate change increasing the risk of flooding and natural disasters, Bronislaw Masojada, chief executive of Hiscox, a Lloyd’s of London insurer, warned consumers and businesses could see insurance premiums go up in coming years. "We observe what happens rather than trying to predict what happens and we adjust the pricing every 12 months. We are very aware that climate risk is driving volatility and ultimately prices could go up in loss affected areas." He noted that people are increasingly moving into risky coastal areas, particularly in the US.  Read more.

Source:  ProgramBusiness.com, Hiscox: Earthquakes and Political Unrest Make 2011 Insurers' Most Expensive Ever, Aug 2, 2011