the Southeast—Hazel and Hugo—would
cause more than $10 billion in losses.
“There simply is not the kind of concentration of exposure here as there is along
other portions of the coastline, such as in
the Northeast, Clark says.
Karen Clark & Co. says the report “fills
an important void” because it doesn’t
simply adjust original losses by the rate
of inflation. Instead, it takes into account
population increases, valuations and construction costs using multiple sources of
information in the methodology.
Estimates were rounded to the nearest
$5 billion “to avoid the illusion of accu-
racy and false precision given the uncer-
tainty around the estimates.”
The chart to the right shows the top 10
costliest hurricanes in U.S. history. —By Chad
E OF THe NeaRLY 180 HURRICaNeS THa T HaVe HIT
THe U.S. SINCe 1900, 28 OF THOSe STORMS wOULD
ReSULT IN $10 BILLION OR MORe IN INSUReD
LOSSeS IN 2012, aCCORDINg TO KaReN CLaRK &
COMPaNY. KCC ReCeNTLY ISSUeD a RePORT TITLeD
“HISTORICaL HURRICaNeS THa T wOULD CaUSe
$10 BILLION OR MORe OF INSUReD LOSSeS TODa Y,”
wHICH IDeN TIFIeS HISTORICaL HURRICaNeS THa T
wOULD LIKeLY CaUSe $10 BILLION OR MORe IN
INSUReD LOSSeS weRe THe Y TO STRIKe TODa Y
gIVeN THe gRea TeR NUMBeR, SIze aND COST OF
STRUCTUReS IN THeIR Pa THS.
TOP 10 Costliest Historical Hurricanes
Insured Losses Adjusted to 2012 Costs
Great New England
10 1954 Hazel
7 2005 Katrina
3 1900 Galveston
6 1915 Galveston
2 1928 Lake Okeechobee
4 1947 Fort Lauderdale
1 1926 Great Miami
$125 billion 5 1992 Andrew
9 1960 Donna
Source: Karen Clark & Co.
number of new policies written.
“Companies hadn’t been tracking exposures on a detailed basis,” says Karen
Clark, the mother of catastrophe modeling and the founder of what is now catastrophe modeler AIR Worldwide.
Making matters worse, no one was lining up to take the policies being left behind by the fleeing national carriers, who
wrote 94 percent of the homeowners’
business. (Today, national carriers make
up less than 20 percent of the market.)
“Right away we had a true [availabil-ity and affordability] emergency on our
hands,” says Gallagher, who is now with
the law firm Colodny, Fass, Talenfeld,
Karlinsky & Abate as a consultant in its
governmental consulting and insurance-regulatory practice.
Proof the storm caught many carriers
by complete surprise, Andrew caused the
insolvencies of eight insurance compa-
nies and the “technical insolvencies” of
others—subsidiaries that required funds
from a parent company to pay claims,
according to a report by Lynne McChris-
tian, Florida representative of the Insur-
ance Information Institute.
Birth and Evolution of Models
Andrew catapulted Karen Clark & Co.’s
catastrophe model product, which issued
a staggering insured-loss estimate of $13
billion for Andrew soon after the storm.
The industry had predicted a far less expensive worst-case scenario for Florida
based off losses sustained from 1989’s
Hurricane Hugo in South Carolina, which
caused about $4 billion in insured losses.
“The industry tended to look at what
just happened versus what could happen,”
through His eyes p. 36 A