Introduction
In recent years, hurricanes have caused record losses for insurance companies and for society as a whole. During the eleven years from 1989 to 1999, U.S. insurers suffered losses from catastrophic hurricanes averaging $3.0 billion per year. Adjusted for inflation through 1999, as well as population growth and changes in the amount of property per person, those losses averaged $4.2 billion per year. That figure is almost four times the $1.1-billion adjusted average annual loss from 1949 to 1988.
Even the 1999 hurricane season — relatively mild by recent standards — produced losses of $2.3 billion, more than double the adjusted average from 1949 to 1988.
From 1949 to 1999, catastrophic hurricanes caused insured property losses of $37.9 billion in the United States, according to ISO's Property Claim Services (PCSTM) unit. [1]1. PCS now defines catastrophes as events that cause $25 million or more in direct insured losses to property and that affect a significant number of insureds and insurers. Dollar figures for catastrophic hurricanes include losses only from hurricanes that meet today's PCS definition of a catastrophe after adjusting the $25 million threshold for inflation. Consistent PCS data is available starting with the 1949 hurricane season, and this website section examines the record for the fifty-one years from 1949 to 1999. When ISO adjusts that figure for inflation, population growth, and changes in real per capita tangible wealth — the amount of property per person — insured losses from catastrophic hurricanes during those fifty-one years total $87.8 billion. Of that amount, $45.7 billion — more than half — occurred in the eleven years from 1989 to 1999.
Taking into account inflation, population growth, and changes in wealth, three of the five most costly hurricanes of the past half century — Hurricanes Andrew, Hugo, and Georges — occurred in the eleven years from 1989 to 1999. And ten of the thirty most costly storms took place in the same period. Based on adjusted losses, the table below shows the thirty most destructive storms to hit the United States since 1949. [2]2. Including Hawaii, Puerto Rico, and the U.S. Virgin Islands.
Several times in the last decade, the press has warned of huge approaching hurricanes — each billed as a "storm of the century." Some of those, including Hurricane Floyd in 1999, proved less severe than anticipated. But the historical record does show some increase in hurricane activity since the late 1980s, after twenty years of relative calm.
From 1990 to 1999, six "intense" (category 3 or higher) Atlantic Basin hurricanes hit the United States. In the 1970s, only four intense storms reached the mainland, and, in the 1980s, five such storms reached the mainland.
But the number and intensity of storms and the paths they have taken are only part of the story. Inflation, demographic trends, and increases in per capita wealth have also caused hurricane losses to rise. More and more people are moving into coastal areas subject to hurricanes. Those people are building more houses and other structures. And the properties are worth more than in the past, both because of inflation and because many properties are more elaborate. [3]3. According to U.S. Department of the Census figures compiled by the National Association of Home Builders, the average size of a new single-family home in the United States rose from 1,645 square feet in 1975 to 2,190 square feet in 1998. In the same period, the percentage of single-family homes with four or more bedrooms rose from 21% to 33% and the percentage with 2 1/2 or more baths rose from 20% to 52%. Other statistics show similar growth. A collection of such statistics is available on the Internet at www.nahb.com/facts/. [Cited 22 February 2000.]
As the concentration of wealth in coastal areas continues to increase, insurers' exposure to hurricane losses will grow. Moreover, computer simulations show that losses from recent storms could have been much worse if their paths or intensities had been only slightly different.
This section of ISO's website traces insurers' hurricane losses over the past half century and explores what insurers have learned about hurricane risk. This section also presents examples of what the insurance industry is doing to manage hurricane risk.
The major sections of this report address:
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