Windstorm is an acquirable commodity: Bryon Ehrhart
Windstorm risk is an “acquirable commodity”, and one that the private sector is working hard to gain control over.
That is the opinion of Bryon Ehrhart, chief executive officer of Aon Benfield Americas, speaking to Intelligent Insurer.
“The continuing theme that we’ve seen is the private sector trying to depopulate wind pools that are still over twice the size they were prior to hurricane Katrina—and the private carriers are able to depopulate some of those pools,” said Ehrhart.
“However, there’s still a need for residual markets where some of the risks themselves are uninsurable because of the age of a dwelling or the age of a roof, which is the principal reason that this market exists, but those that are in the residual market because of lack of capacity or unavailability of insurance, can be depopulated by private insurers that have built sustainable underwriting capital bases—including reinsurance.”
In 2014, Florida’s Citizens, the insurer of last resort for Florida wind, transferred more than 300,000 policies back to the private sector, reducing its total policy number to below one million for the first time since 2006.
But, despite interest in government held risks increasing, it is unlikely that some risks, such as flood, will fall to the private sector easily.
Ehrhart said that while flood is “inherently insurable”, the private sector will find competing with government subsidies on price a challenge for a long time.
Robert Hartwig, senior vice president and chief economist for the Insurance Information Institute (III) agreed that absorption of flood risk by the private sector is still a long way off.
“In the US there are a few other government programmes related to insurance—the largest of these is the National Flood Program. However, this programme is $24 billion in debt and has no hope of getting out of it,” he said.
“While private insurers would like to be more involved in this market, they’re generally unable to participate significantly as they can’t compete with the subsidised prices charged by the government.”
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