Virtually all meteorological experts agree that hurricane activity will remain high and will continue to present serious risk of loss to the U.S. This prediction means it could be a very expensive summer for insurers. But how can insurers account for the unaccountable?
The simple answer is that all property/casualty companies that write policies in hurricane-prone areas need to be proactive in their preparations. In doing so, these companies must create and enact operational plans for handling higher claim activity, which is something included in an overall enterprise risk management (ERM) methodology.
Risk management must be at the heart of all decisions made by property/casualty insurers. A quality ERM strategy is invaluable, as it helps not only to measure and manage a single risk, but also to integrate it with all of the other risks unique to that company.
Some of the risk factors that must be considered in a successful ERM strategy that will prepare insurers for extraordinary acts of nature include the following: a thorough analysis of concentrations of risk; correlations with other risks; implications on the company’s capital; profitability and growth of a full spectrum of underwriting; reinsurance; and capital management decisions.