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Part 1: Why America should care.
After several brutal hurricane seasons, the insurance industry is rethinking how it prices policies. Many see it as a sign that America is now grappling with the reality that global climate change is affecting the economy.
NEW YORK — The 2004 and 2005 seasons, which included Hurricane Katrina and multiple landfalls in Florida, set the insurance industry reeling.
The storms generated 5.6 million claims and insurance payouts of $81 billion. By comparison, losses from hurricanes during the previous two years were $2.2 billion.
“There was a guy in Zurich that you could call up the day after a major hurricane who could pretty accurately tell you what the losses for the company would be,” recalled Chris Walker, who at the time led the Greenhouse Gas Risk Solution Unit for Swiss Re, the world’s largest reinsurer. “He could look through the systems and see what we’ve insured in that region, see where the storm had gone, and pretty much guesstimate.”
“Where he was wrong this time is he didn’t factor in business interruption,” Walker said.
“The sheer magnitude of the devastation meant that the McDonald’s that was damaged, for instance, if everything else had been equal, the windows and roof could have been fixed within days," he said. "And it would have been operational. Now it had this extended inability to operate. Even if it was fixed, there were no customers. There were no sources for food.”
According to Chris Winans, vice president for media relations at the American International Group, the country’s largest insurance company, "the 2004 situation was four hurricanes in rapid succession hitting the same area." As a result, “you had a new risk factor being built in. It’s one thing to say how a hurricane damages a structure. It’s another thing to talk about how the second one right behind it re-damages it. At what stage are you at repairing from the first?”