Highlights
Natural disasters seem to be on the increase everywhere. Successful insurance agencies need to be thinking of new ways to deliver their products to meet increasing client needs while at the same time protecting themselves from insolvency. Possible options include:
- Restructuring of policies
- New insurance products
- Client education
- Incentivizing/disincentivizing clients
2020 was a bad year by anyone’s standards. Even leaving aside the global pandemic, it was a year marked by natural disasters all over the world. Wildfires, hurricanes, tornadoes, and floods were some of the tragedies that the world had to deal with. While many individuals, businesses, and organizations suffered great losses, it can’t be denied that the insurance companies that protect those individuals, businesses, and organizations also suffered. Will the same happen in 2021? And if so, how will insurers cope?
Looking Ahead to 2021

Was 2020 an anomaly, or will the trend continue in 2021? If the early weeks of the new year are any indication, natural disasters will continue to rock the world. In the week of January 18th alone, there have been:
- Windstorms
- An earthquake
- Flooding
- Landslides
- Wildfires
- Emergencies caused by climate change and drought
No country in the world seems unaffected. Climate change has had a huge effect on the weather and the natural landscape, and as a result, people will continue to experience natural disasters that threaten life and property.
The Cost of Natural Disasters

Natural disasters have many costs, including personal costs. But the economic costs of natural disasters can be overwhelming by themselves. For example, one estimate for California’s wildfire season in 2020 projects costs of between $130 billion and $150 billion.
That’s just one type of disaster in one state, and it’s a fair bet that a good portion of that cost will be borne by insurance agencies. In some cases, natural disasters can force an agency into bankruptcy. So, what can insurance agencies do to protect themselves?
Options for Agencies
Because natural disasters are trending upward, agencies are going to have to start making difficult decisions about how to deal with the problem. Possible options include:
- Restructuring of policies. Where laws and regulations allow, insurance agencies might opt to no longer cover certain expected natural disasters in standard policies.
- New insurance products. This could be a time of innovation for insurance agencies. Some may create products meant to address new or increased dangers their clients face. This would allow agencies to continue protecting clients while increasing revenue to cover claims.
- Client education. Insurers may better educate clients about the various ways they can protect their property in the event of a natural disaster.
- Incentivizing/disincentivizing clients. Agencies may consider implementing new discounts or new restrictions such as offering a discount for homeowners who purchase certain types of hurricane protection for their homes. They might also decline to cover clients who fail to protect their property or take certain outlined risks.
There may be other changes within the insurance industry, also. As a bottom line, the industry will continue to be threatened by the uptick in natural disasters and will need to take steps to address those threats. Insurers should keep an eye out for these changes and be thinking about how they apply to their own agencies.
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