Northeast Hurricane Mitigation Leadership Forum

July 11, 2008Newport, Rhode Island

Economic, Social and Environmental Impact of Hurricanes by:

Jeanne M. SalvatoreSenior Vice President, Public Affairs & Consumer

Spokesperson, Insurance Information Institute

www.iii.org

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Presentation Outline

I. Overview of Insured Catastrophe Losses in the U.S.

II. Insured Value of the Northeast

III. Who is going to pay for a Northeast Hurricane?

IV. Level of Preparedness

V. I.I.I. Resources

I. Overview of Insured Catastrophe Losses in the U.S.

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What is a catastrophe from an insurance perspective?

A “catastrophe” in the property insurance industry is a natural or man-made disaster when claims are expected to be over $25 million.

.

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Top 11 Insured PropertyLosses in US ($2005)

$3.8 $4.8 $5.0 $6.6 $7.4 $7.7$10.3

$16.5$20.7 $21.6

$40.6

$0$5

$10$15$20$25$30$35$40$45

Hurrica

ne Jea

nne (20

04)

Hurrica

ne Fra

nces (

2004

)

Hurrica

ne Rita

(200

5)

Hurrica

ne Hug

o (19

89)

Hurrica

ne Iva

n (200

4)

Hurrica

ne Char

ley (2

004)

Hurrica

ne Wilm

a (20

05)

North

ridge

Ear

thquak

e (19

94)

Sept.

11 T

erro

r Atta

ck (2

001)

Hurrica

ne Andr

ew (1

992)

Hurrica

ne Kat

rina (

2005

)

$ B

illi

ons

Note: 9/11 loss figure is for property claims only. Sources: ISO/PCS; Insurance Information Institute.

Eight of the 11 most expensive disasters is US

history occurred since 2001

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Inflation-Adjusted U.S. Insured Catastrophe Losses By Cause of Loss, 1987-2006¹

Fire, $6.6 , 2.2%

Tornadoes, $77.3 , 26.0%

All Tropical Cyclones, $137.7 ,

46.3%

Civil Disorders, $1.1 , 0.4%

Utility Disruption, $0.2 , 0.1%

Water Damage, $0.4 , 0.1%Wind/Hail/Flood,

$9.3 , 3.1%

Earthquakes, $19.1 , 6.4%

Winter Storms, $23.1 , 7.8%

Terrorism, $22.3 , 7.5%

Source: Insurance Services Office (ISO)..

1 Catastrophes are all events causing direct insured losses to property of $25 million or more in 2006 dollars. Catastrophe threshold changed from $5 million to $25 million beginning in 1997. Adjusted for inflation by the III.2 Excludes snow. 3 Includes hurricanes and tropical storms. 4 Includes other geologic events such as volcanic eruptions and other earth movement. 5 Does not include flood damage covered by the federally administered National Flood Insurance Program. 6 Includes wildland fires.

Insured disaster losses totaled $297.3 billion from

1987-2006 (in 2006 dollars). Hurricanes and tornadoes

accounted for approximately 75% of these.

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Top 10 Most Costly Hurricanes in US History, (Insured Losses, $2005)

$3.5 $3.8 $4.8 $5.0$6.6 $7.4 $7.7

$10.3

$21.6

$40.6

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

Georges(1998)

Jeanne(2004)

Frances(2004)

Rita (2005)

Hugo(1989)

Ivan (2004)

Charley(2004)

Wilma(2005)

Andrew(1992)

Katrina(2005)

$ B

illi

ons

Sources: ISO/PCS; Insurance Information Institute.

Seven of the 10 most expensive hurricanes in US history

occurred in the 14 months from Aug. 2004 – Oct. 2005:

Katrina, Rita, Wilma, Charley, Ivan, Frances & Jeanne

1010

$20$24 $26

$33 $33 $34 $35$41 $42

$80

$0$10$20$30$40$50$60$70$80$90

$ B

illi

ons

With continued coastal development, $35B+ storms will be more common.

Source: AIR Worldwide **ISO/PCS estimate as of June 8, 2006

Largest Insured Losses (Adjusted to 2005 Exposure Levels) from 10 Hurricanes

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Coastal Development A study published in 2004 by NOAA, based on

U.S. Census data, found that in 2003 53 percent of the nation’s population lived in coastal counties.

Between 1980 and 2003, the populations of coastal counties grew by 33 million people or 28 percent.

Exposure to windstorms and high property values combine to make Florida the state with the highest potential for losses and New York’s Long Island the second highest.

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States Leading in Coastal Population Growth

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Estimated Insured Value of Coastal Exposure (2007, $ Billions)

$2,378.9$895.1

$772.8$635.5

$479.9$224.4

$191.9$158.8$146.9$132.8

$92.5$85.6

$60.6$55.7$54.1$51.8

$14.9

$2,458.6

$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000

FloridaNew York

TexasMassachusetts

New JerseyConnecticut

LouisianaS. Carolina

VirginiaMaine

North CarolinaAlabamaGeorgia

DelawareNew Hampshire

Rhode IslandMississippiMaryland

Source: AIR Worldwide athttp://www.air-worldwide.com/_public/images/pdf/AIR2008_Coastline_at_Risk.pdf?src=email

Over the last three years (2005-2007), the insured value of

properties in coastal areas grew at a 7.3%/year compound rate. If this

growth rate persists, the insured value will double by 2017.

II. Insured Value of the Northeast

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Projected Insured Value

Projected insured value (in billions) of properties in coastal counties in 2017, assuming a compound annual growth rate of 7.3%:

Maine                     $   293.8 New Hampshire     $   111.4 Massachusetts        $1,545.6 Rhode Island          $   108.2 Connecticut            $   959.8 New York               $4,757.8

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Coastal Population Density for New England States, 1980 vs. 2008*

*Density = number of persons per square mileSource: NOAA; U.S. Census Bureau

963

727

265

62

906

837

641

171

50

1,047

0 200 400 600 800 1000 1200

Rhode Island

Massachusetts

Connecticut

New Hampshire

Maine

Coastal Population Density 2008 Coastal Population Density 1980

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Population Growth Projections for Hurricane Exposed States, by Percentage: 2000-2030

33.2%

10.7% 10.4% 10.0%8.3%

0%

5%

10%

15%

20%

25%

30%

35%

New Hampshire Maine Massachusetts Rhode Island Connecticut

Source: U.S. Census Bureau

Percent

III. Who is going to pay for a Northeast Hurricane?

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Facts About Economic Recovery from Major Catastrophes

Insurance is By Far the Most Efficient Means of Economic Recovery from a Catastrophic Loss for Property Owners and Entire Communities

Majority of Hurricane Losses Are Covered by Private Insurance Approximately 96% of homeowners and most businesses carry

property coverage. Less than 50 % of renters purchase insurance. The average home insurance policy costs about $870/year.

Flood Losses are Typically Not Covered Under Standard Homeowners Insurance Policies Flood coverage is available at subsidized rates through the

National Flood Insurance Program (NFIP) Increasingly, excess flood insurance is available from private

insurers.

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Facts About Economic Recovery from Major Catastrophes

• Government is Under No Obligation to Provide Aid Aid could be nominal amount and could be in the form of a grant

that must be repaid• Private Insurance Will Stimulate Employment, Retail

Sales and Tax Receipts in Impacted Areas• Ultimate amount of local income generated will be 2 to 3 times the

amount paid by insurers through so-called “multiplier effect” Insured value of coastal property rose approximately 24%

between 2004 ($7.2 trillion) and 2007 ($8.9 trillion) Recovery would be financed primarily by private insurance

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Key Consumer Messages

A key part of disaster planning needs to include insurance. Consumers need to:

Purchase the right amount and type of insurance, including flood insurance.

Have an up-to-date home inventory. Know what their hurricane deductible is

and put money aside for a disaster.

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Windstorm Deductible: Exist in the Following States

AlabamaConnecticutDelawareFloridaGeorgiaLouisianaMaineMarylandMassachusetts

MississippiNew JerseyNew YorkNorth CarolinaRhode IslandSouth CarolinaTexasVirginiaWashington, DC

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Deductibles Percentage deductibles typically vary from 1 percent of a

home’s insured value to 5 percent. In some coastal areas with high wind risk, hurricane

deductibles may be as high as 25 percent. The amount that a homeowner will pay depends on the

home’s insured value and the “trigger” selected by the insurance company, which determines under what circumstances the deductible applies.

In some states, policyholders may have the option of paying a higher premium in return for a traditional dollar deductible.

IV. Level of Preparedness

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I.I.I. Insurance 2008 Pulse Survey Finds Northeast Still Not Properly Prepared

Disaster Mitigation Only 21 percent of northeast residents have taken steps

to protect their home from a natural disaster. While this is a dangerously low number, it is a marked improvement from last year when only 12 percent had reported making the necessary changes. This compares to 24 percent nationwide.

Of those who did NOT take steps to improve their home, 31 percent said it was too expensive.

More Americans, however, said that they would pay more for a home built to withstand a natural disasters. In fact 60 percent said they would pay more compared with 46 percent a year ago. In the Northeast, 57 percent said they would pay more compared to 45 percent last year.

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I.I.I. Insurance 2008 Pulse Survey Finds Northeast Still Not Properly Prepared

Home Inventory About half of Americans have an

inventory of their possessions. In 2008, 54 reported creating an inventory, compared to 51 percent in 2007 – only a nominal improvement.

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I.I.I. Insurance 2008 Pulse Survey Finds Northeast Still Not Properly Prepared

Flood Insurance While not enough consumers purchase flood

insurance, fewer Americans now think their homeowners policy covers damage from flooding.

Nationwide, 27 percent think flooding is covered compared with 35 percent a year ago.

In the northeast, 29 percent think it is covered compared with 54 percent a year ago.

V. I.I.I. Resources

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Disaster Insurance Information Preparedness information covering hurricanes, tornadoes, earthquakes, floods, wildfires and terrorism

Evacuation video http://www.iii.org/static/video/mediaplayer/evacuation.wmv

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Insurance Information Institute On-Line

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