We’ve published a few articles on the strangest insurance policies, and provided a brief history of the insurance industry, but what were the catastrophes that led to the largest claims in history? This was a question from my editor, designed to inspire me to write another blog. Of course, I gladly took the bait. I started jotting down some possibilities off the top of my head like the 1984 Bhopal gas leak in India, 9/11, Piper Alpha oil rig explosion, Challenger space shuttle launch failure, and the most damaging nuclear reactor disasters.
Then when I did the research, I discovered my memory was not as sharp as I thought. In fact, in most cases my original assumptions were wrong. Undeterred however, I found 20 major catastrophes to study, plus one huge historical loss event that was not insured at all. I’ll save that one for later.
Firstly, out of that Top 20 biggest insurance payouts ever, I only got one right! It was the terrorist attack on the World Trade Center – the infamous 9/11 incident in 2001, which cost insurers more than 25.99 Billion US Dollars. Surprisingly it only comes in at Number 8 in the Top Twenty Insurance payouts.
DNA researchers are still today, after 17 years, carrying out the task of positively identifying names of the victims from bone fragments at the site. The alleged perpetrators were AL-Qaeda who orchestrated four coordinated terrorist attacks in New York on the morning of September 11th, 2001.
The attack on the World Trade Center involved hijacking four commercial aircraft, which were used to destroy major buildings in the World Trade Centre, damage a portion of the Pentagon, and cause the death of 2,996 victims (including 19 terrorist hijackers). Counting the value of the lives lost, property damage including the aircraft, lost production of goods and services, loss in stock market wealth, clean-up costs etc., the total price tag is estimated to be around 2 Trillion US Dollars with only approx. 25 Billion US Dollars covered by insurance.
Insurance cannot cover everything that happens in a disaster of this magnitude.
However, looking at my main research list (Swiss Re 1970 to 2017), it’s clear the main culprit for mega insurance claims is dear old Mother Nature! Even as I write this article, news bulletins provide updates on Hurricane Florence and Typhoon Mangkhut.
Pictured is a graph of the most costly catastrophes to the insurance industry worldwide from 1970 to 2017 (in billions of U.S. dollars). Hurricanes and typhoons top the Mother Nature list with earthquakes/tsunami in second place followed by flooding and drought.
2005’s Hurricane Katrina in the Gulf of Mexico caused a huge storm surge damaging oil rigs and property to the tune 0f 82.39 Billion US Dollars to the world insurance and reinsurance industry. It’s the biggest single insurance claim to date. Hurricane Harvey, Hurricane Irma and Hurricane Maria (all in October 2017) cost 30 Billion US, 30 Billion US, and 32 Billion US respectively (total of 92 Billion US Dollars) making 2017 the worst disaster year on record for the Insurance industry (approx. 140 Billion US Dollars in total).
Earthquakes in Japan, USA, New Zealand and Chile make up a total of 91.48 Billion US Dollars on the Top Twenty list, but surprisingly are not the biggest claims.
The 2012 drought in the USA’s Corn Belt cost the insurance market 11.74 Billion US Dollars, making it the largest agricultural insurance loss ever. This is a class of business I personally don’t like. Insuring humans? Yes. Insuring plants? No!
All these disasters are taken from accurate sources and whilst the worldwide insurance and reinsurance companies have taken these mega hits on claims and still thrived and prospered, there are a few huge losses currently not covered by insurance policies.
The most topical worry to the worldwide insurance and reinsurance markets today is cybercrime and cyber-liability.
Insurance experts in these fields are still working on possible wordings and covers that could be provided. Some insurance protection is already in place in some markets but we all worry about major meltdowns in communications and utilities companies, which could be beyond even the total capacity of the worldwide market. Cybercrime could bankrupt the entire industry!
The other event that I must comment on is the Great Fire of London in 1666. I just happened to be reading a history of Lloyds recently for another blog (watch this space) and I came across a reference to the Great Fire. Of course, it was not covered because fire insurance wasn’t invented yet! Insurance didn’t exist until the Hand in Hand Fire Insurance company in 1678 – 12 years after the great tragedy.
According to the famous diary of Navy Administrator Samuel Pepys, the death toll caused by the ‘fyre’ (the old English spelling) was impossible to determine because there were no census figures, and many of the dead and were buried in the rubble of slums. Even if attempts had been made to count the loss of life, the heat generated by the fire would have incinerated remains to the extent that would make identification impossible.
The fire was spread not merely by wood (most of the buildings) but also thatch, fabrics, oil, pitch, coal, tallow wax, fats, sugars, alcohol, turpentine and gun powder stored in the riverside district. The fire burned so hot that imported steel on the docks melted and the great iron chains and locks on the city gates also melted! We can safely assume not many bone fragments were left in the tens of thousands of tons of rubble.
The actual material damage has been computed at 13,500 Houses, 87 Parish Churches, 44 Company Halls, the Royal Exchange, the Custom House, St. Paul’s Cathedral the Well Bride Palace, city prisons, the General Letter Office (no mail received or delivered for weeks) and three western city gates.
The actual monetary value of the loss was first estimated at 100,000,000 Pounds. It was later reduced to an uncertain 10,000,000 pounds (equivalent to 1.55 Billion in current value).
We have a map of the damaged area (right) and if that area was to be destroyed by fire today, I feel we could multiply the damage by a factor of at least 100. With today’s mega businesses, skyscrapers and expensive fittings, the Great Fire would certainly be the most expensive disaster ever!
While we wouldn’t expect a small fire starting in a baker’s shop on a Sunday morning would burn a significant area of London today, it’s also fair to say most of the world’s costliest disasters were unexpected. As we’ve illustrated, whether the culprit is a terrorist organisation or the unstoppable force of a hurricane, insurers and their clients are equally helpless.
When tragedy strikes there is little to do but rely on the precautions we’ve put in place, and of course, make sure we all (including the insurers) have the right insurance policies to cover our losses.
Jeffrey James Whittaker is a veteran of the insurance industry who has worked with large clients on high value, high profile ‘Mega Projects’ such as sky trains, subway systems, hydro-electric dams and various oil/gas projects, both on-shore and off-shore.