Natural Disasters' Effect on Property and Casualty Insurance

Fort McMurray Wildfire and its Economic Impact

Fort McMurray, Canada, witnessed one of the largest wildfires in 2016, resulting in estimated damages of $3.7 billion. This was "double the sum of the previous costliest natural disasters on record," according to the Insurance Bureau of Canada. Nonetheless, the frequency and severity of natural disasters are not restricted to Canada. Hurricanes, such as Katrina, Wilma, and Rita in 2005, and Hurricane Ike in 2008, caused severe damage in the United States (Benali & Feki, 2017). Such occurrences are common around the world, and while people seek insurance covers, the frequency and intensity of these disasters cause great economic losses as well as increase in insured losses (Benali & Feki, 2017). Due to the unpredictability, severity, and frequency of natural disasters in recent years, the Property and Casualty insurance has incurred losses, leading some to abandon their operations in certain areas, or avoid certain regions.

Increasing Global Disasters and Insurance Industry Impact

According to data from the Insurance Bureau of Canada, disasters around the globe have increased five times since the 1980s (Insurance Bureau of Canada, 2017). While the natural disasters resulted in losses worth $25 in the 1980s, the figure stood at over $130 billion by the 2000s (Insurance Bureau of Canada, 2017. While the volume of capital and surplus premiums can positively affect the industry, the loss ratio from the disasters has an adverse impact on the insurer's profitability. Moreover, sudden catastrophic events escalate the loss ratio, disrupting the P&C insurers and leading them to negative financial adversities. Due to such risks, P&C insurers from the United States and around the world ten to reduce the number of their contracts in areas likely to experience catastrophes (Benali & Feki, 2017). For example, major insurance companies retreated from high-risk regions like State Farm in Florida due to its high risks of hurricane occurrence. Such action, while shielding the P&C insurers, leaves the residents of such areas exposed to the risks of losing their property.

Government Involvement and Insurers' Strategies

The governments take several measures to encourage insurers from abandoning areas facing high risks of a natural disaster occurrence. For example, the United States created the "Florida Hurricane Catastrophe Fund" that compensates a fraction of the losses to the affected people, leaving another portion for the P&C insurers (Benali & Feki, 2017). Other countries such as Canada are pressing for the government involvement in compensation to convince P&C insurers in covering residents of high prone regions (Insurance Bureau of Canada, 2017).

Using Technology to Enhance Coverage

While such programs encourage insurers to cover the insurable risks in the areas, the companies need better strategies to ensure that in the long run, they cover the people against natural disasters. As a president of my insurance company, I may use technology to create a model for predicting the intensity and severity of natural disasters in given areas. Moreover, with the data and measures of probability, the company can create risk models, risk sharing resources, and additional policy coverages. My company will also access the future risks and take various measurement such as re-evaluating portfolio of the risk borne, to stabilize the technical performance of the models (Benali & Feki, 2017). With this, the company will increase premiums and capital to indemnity losses that would guarantee the consumer is protected against the losses from the natural disaster and the company from consecutive financial losses.


In conclusion, while the frequency, severity, and unpredictability of natural disasters negatively affect the P&C insurance profitability, measures such as retreating from high prone regions leaves residents of such areas at risk. The companies in the P&C industry must look for ways to shield them from heavy losses while protecting their consumers. The use of technology in modeling perfect covers is one of the ways a company can protect itself from losses. With such models and the help from the government, the insurance companies can confidently cover residents while protecting themselves from losses.


Benali, N., & Feki, R. (2017). The impact of natural disasters on insurers’ profitability: Evidence from Property/Casualty Insurance Company in the United States. Research in International Business and Finance.

Insurance Bureau of Canada. (2017). Severe weather, natural disasters cause record year for insurable damage in Canada. Retrieved 27 July 2017, from

Deadline is approaching?

Wait no more. Let us write you an essay from scratch

Receive Paper In 3 Hours
Calculate the Price
275 words
First order 15%
Total Price:
$38.07 $38.07
Calculating ellipsis
Hire an expert
This discount is valid only for orders of new customer and with the total more than 25$
This sample could have been used by your fellow student... Get your own unique essay on any topic and submit it by the deadline.

Find Out the Cost of Your Paper

Get Price