Natural disasters

RECENT NEWS
Insurance Journal  Aug 19  Comment 
Calling the recent flooding event in Louisiana one of the most significant natural disasters in the United States, catastrophe modelling firm RMS said flood insurance participation is low in the parishes most affected by floods. Flooding since...
The Hindu Business Line  Aug 15  Comment 
With 1.5 lakh lives lost each year, road accidents kill more people in India than terrorism or natural disasters. There’s now a new law in the making to address this problem in the form of the Motor V...
Insurance Journal  Aug 9  Comment 
Munich Re, the world’s second-biggest reinsurer, reported second-quarter profit that beat analysts’ expectations as gains from currencies and investments cushioned higher claims from natural disasters and restructuring charges at its Ergo...
Financial Times  Aug 5  Comment 
German insurer suffers higher claims for natural disasters
Financial Times  Jul 29  Comment 
Reinsurer’s net profits fall by almost a fifth after floods and fires contribute to claims surge
Financial Times  Jul 25  Comment 
Impact from natural disasters tempered by diversification away from commercial insurance
Insurance Journal  Jul 14  Comment 
Insurers could soon be able to deploy drones for speedier response to natural disasters under a provision in legislation reauthorizing the Federal Aviation Administration passed by the Senate Wednesday. “The process called for in this...
BBC News  Jun 27  Comment 
Natural disasters and an unstable political environment mean an uncertain environment for Thai companies. How do they cope?
Channel News Asia  Jun 13  Comment 
Deputy Prime Minister Tharman Shanmugaratnam cites growth areas in the region that insurers can tap, including providing insurance solutions for cyber and natural disaster risks as well as investing in infrastructure.
newratings.com  Jun 13  Comment 
WASHINGTON (dpa-AFX) - Social networking giant Facebook activated its Safety Check feature in the U.S. for the first time on Sunday following the mass shooting at a gay nightclub in Orlando, Florida. A click or tap on the 'I'm...




 
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A natural disaster is the consequence of a natural hazard (e.g. hurricane, volcanic eruption, earthquake, landslide) which moves from potential in to an active phase, and as a result affects human activities[1]. Business is one such activity.

The International Red Cross, which publishes an annual World Disasters Report, says the economic cost of natural disasters has skyrocketed. In the past two decades alone, direct economic losses from natural disasters multiplied five fold to US$629 billion. Annual direct losses from weather-related events increased from an estimated $3.9 billion in the 1950s to $63 billion in the 1990s[2].

Natural disasters tend to affect insurance companies as well as local businesses affected by the disaster. The impact on other businesses can vary. For example, disruption in the oil drilling and refining activities in the Gulf of Mexico during the 2005 hurricane season caused some companies to lose revenue due to the loss of productive capacity, but also caused the price of oil to increase thus benefiting others in the industry. Landstar System, which has a contract to provide trucking services to the U.S. Government in the aftermath of natural disasters, was also a beneficiary[3].

Some studies have suggested that commodities provide an effective hedge against natural disasters because disasters such as floods, drought and hurricanes can affect commodity supply (see oil example above) and increase the price. However, the effect can differ across commodities - a drought could cause a shortage of corn and increase corn prices. The higher corn prices raises feed prices, which could cause ranchers to slaughter cattle earlier than usual and depress the price of that commodity in the short term.

Companies with negative exposure

Many companies are adversely impacted by the threat or actuality of natural disasters. Some include:

  • Property & Casualty insurance companies
  • Homebuilders and REITs with exposure to earthquake or hurricane prone regions
  • Travel and vacation companies, including cruise lines like Carnival (CCL) and Royal Caribbean Cruises (RCL) who operate in the Caribbean, where hurricanes are most common.
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