Catastrophe Insurance Issues

Hurricane Andrew and the Northridge earthquake were far more destructive than natural disasters of this type were in the past. Experts now say that if a hurricane or major earthquake hit a major metropolitan area, such as Miami or Los Angeles, damage claims would almost certainly exceed $50 billion. An insurance company's ability to underwrite insurance policies is tied to its capital and the riskiness of the properties it insures. Following Hurricane Andrew, insurers began to reassess the likelihood of losses, using computer models to pinpoint high risk areas. To help them better withstand the financial strain of a megadisaster, they cut back the number of policies they would write in disaster-prone areas.