One UK insurance company which specialized in business for local authorities collapsed because it failed to ensure that premium rates reflected the likely cost of claims. It had underpriced its business, particularly in the area of public liability claims -- covering payments, for example, to those who trip over pavements or the victims of abuse in local authority homes. Environment-related claims, such as asbestos in buildings, and those relating to the failure of aging infrastructure, were also unexpectedly high and inadequately underwritten.
The payout for weather-related damage climbed from $16 billion during the entire 1980s to $48 billion in the years 1990-1994. The assumption is that climate change due to global warming is the reason. There have been 15 disasters costing insurance companies more than $1 billion each since 1987, of which 10 were windstorms.
In the wake of these storms, by 1993 the amount of money available for disaster coverage with British insurers dropped to less than $50 billion from $100 billion. Many large client companies now can buy only 20% of the coverage that previously was for sale from insurers; other clients cannot obtain catastophe coverage at all. Insurers are now dividing up the world more carefully into climatic zones, and setting their premiums according to the risk of catastrophic weather in these zones.
The new nature of unpredictable weather threatens the insurance industry. The insurance giant Swiss Re, which paid out $291.5 million in the USA in the wake of Hurricane Andrew, ran an advertisement in the Financial Times showing its corporate logo bent sideways by a storm.