Storms become integral part of insurance business

Insurance companies worried about effects of global warming

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By Kari Räisänen
     
      The powers of nature have entered the insurance business, and they are there to stay. Hurricanes and earthquakes lead to sleepless nights in insurance companies around the world, and in Finland, storms and deluges are the cause for concern.
      In January 2005, the worst winter storm of all time raged in the Baltic Sea and Gulf of Bothnia. In Southern Sweden, the heavy winds associated with the storm felled more trees in one day than would normally be chopped down in the country over the course of an entire year.
      In Helsinki, the sea level was 1.5 metres higher than normal.
     
The storms also led to action on stock exchanges.
      As soon as a couple of days after the storm, insurance companies issued their first press releases concerning the damage: Pohjola estimated that it would pay compensation for repairs worth five million euros. Nordic insurer If believed that its losses would total 27–30 million euros.
      "All the signs are pointing towards exceptional weather phenomena becoming more and more common", remarks head of insurance Veli-Pekka Kemppinen from insurance company If. "The rise of the sea level in Helsinki proved that large-scale damages are possible here as well."
     
Preparing for natural disasters is pure mathematics for insurance companies. Put simply, the risks are first evaluated, then the insurance premiums and need for reinsuring are determined.
      Deputy Managing Director Antti Calonius from Tapiola reports that insurance companies have cooperated with meteorologists for a long time.
      "We regularly discuss what type of destruction is possible", he explains.
     
Large reinsurers, such as Swiss Re, have been the most interested in the forces of nature. Individual insurance companies use reinsurers to decrease risks that they deem to be too great.
      In fact, Swiss Re announces on its website that it supports all measures that can help to restrict the greenhouse effect and global warming.
      In the files of reinsurers, Finland still belongs to the group of countries where there is little danger of natural disasters. The value of compensation paid out is largest when nature unleashes its fury on the United States or Western Europe. According to Swiss Re, the damages caused by Hurricane Ivan in the U.S. last September amounted to a bill of 11 billion dollars for insurance companies.
     
Kemppinen says that up until now, insurance companies in Finland have most often simply determined that the majority of damages caused by natural disasters are not covered by their policies. Damages caused by flooding rivers have often been at the centre of public debates, especially since insurers do not even provide coverage against such losses.
      "Based on the legislation, flood damages are the responsibility of the state. That is one reason why insurance companies have been unwilling to enter that territory", Kemppinen reasons.
      Another reason for the reluctance is that special flood insurance would only interest those people who face large risks. They are few in number, so the insurance policies would be expensive, and they would not sell.
     
Helsingin Sanomat / First published in print 19.8.2005

More on this subject:
 More parties to pay for floods
 Heaviest insurance losses from natural disasters in 2004

Previously in HS International Edition:
  Swedish storm damage also lowers timber price in Finland (13.1.2005)

KARI RÄISÄNEN / Helsingin Sanomat
kari.raisanen@hs.fi