Paul Poulos Actuarial Science. Insured pays premiums to insurance companies to protect themselves in...
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![Page 1: Paul Poulos Actuarial Science. Insured pays premiums to insurance companies to protect themselves in the event of a loss. When an insured experiences.](https://reader035.fdocuments.us/reader035/viewer/2022062421/56649db95503460f94aa9a84/html5/thumbnails/1.jpg)
Insurance and WeatherPaul PoulosActuarial Science
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How Insurance Works• Insured pays premiums to insurance companies to
protect themselves in the event of a loss.• When an insured experiences a covered loss they
file a claim and the insurance company will pay the claim• Claims are often subject to deductibles
• Insurance companies collect the premiums from all of their clients monthly or annually and use that money to cover these losses.
• Insurance companies almost always have Reinsurance policies which help them cover losses of great scale (natural disasters).• Reinsurance company will pay a part of the loss if the
insurance company cannot cover the entire loss themselves.
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How Insurance Rates Are Set• Insurance companies calculate their risk when
they determine an individual’s premium.• They use historical data to make an educated
estimate of the likelihood of a covered person experiencing a loss.• Health insurance: Smoker, Family medical history• Car Insurance: Age, Gender• Homeowners Insurance: Location (weather)
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Car Insurance• 71% of all car accident-related deaths in 2012 were males.• The number of drivers who died in a fatal car accident was
50% higher for men than women in 2008.• Men are much more likely to have been under the influence
of alcohol in a fatal crash. In 2012, 38% of fatally injured male drivers had BACs of over 0.08%, as compared to 20% of fatally injured female drivers.
• Seat belt use was observed in 88% of female front seat occupants, as compared to 84% of male front seat occupants.
• In 2012, 23% of male drivers who were involved in fatal accidents were speeding at the time of the accident, while 14% of women involved in fatal crashes were doing the same
• For this reason, the premiums paid by a man will be greater than a woman• Given similar age, car, and driving history
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Weather as a Risk Factor• Extreme weather can be a huge source of risk for
insurance on a home or car.• Falling tree branches from high winds• Fires caused by lightning storms• Flooding caused by heavy rain• Hail damage
• For this reason insurance companies use historical weather data as a factor in determining premiums
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Falling tree branches caused by high winds
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Hail Damage
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Flooding caused by heavy rainfall
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Tornadoes
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How does this affect your cost of insurance?• Depending on where you live you may be at a
higher risk for a loss simply due to the higher probability of an extreme weather occurrence.
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State Monthy Premiums Annual Premiums % Change vs. AvgFlorida $161.08 $1,933 97.60%
Louisiana $139.33 $1,672 71.00%
Texas $131.50 $1,578 61.30%
Mississippi $117.42 $1,409 44.10%
Oklahoma $115.50 $1,386 41.70%
Alabama $96.92 $1,163 18.90%
Rhode Island $94.92 $1,139 16.50%
Kansas $91.92 $1,103 12.80%
New York $91.42 $1,097 12.20%
Connecticut $91.33 $1,096 12.10%
States With the Highest Average Homeowners Insurance Costs
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States With the Lowest Average Homeowners Insurance Costs
State Monthy Premiums Annual Premiums % Change vs. AvgIowa $59.42 $713 -27.10%
Nevada $57.42 $689 -29.60%
Arizona $56.25 $675 -31.00%
Delaware $55.33 $664 -32.10%
Ohio $53.67 $644 -34.20%
Washington $52.17 $626 -36.00%
Wisconsin $49.33 $592 -39.50%
Utah $46.92 $563 -42.40%
Oregon $46.58 $559 -42.80%
Idaho $43.17 $518 -47.00%
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How does this affect society as a whole?• Large scale natural disasters account for the
majority of the largest insurance losses in history.
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10 Most Costly World Insurance Losses, 1970-2013
Rank Date Country Event Insured loss*1 Aug. 25, 2005 U.S., Gulf of Mexico,
Bahamas, North AtlanticHurricane Katrina, storm surge, levee failure,damage to oil rigs
$80,373
2 Mar. 11, 2011 Japan Earthquake (Mw 9.0) triggers tsunami, aftershocks
37,665
3 Oct. 24, 2012 U.S., et al. Hurricane Sandy, storm surge
36,890
4 Aug. 23, 1992 U.S., Bahamas Hurricane Andrew, floods
27,594
5 Sep. 11, 2001 U.S. Terror attacks on WTC, Pentagonand other buildings
25,664
6 Jan. 17, 1994 U.S. Northridge earthquake (M 6.6)
22,857
7 Sep. 6, 2008 U.S., Caribbean: Gulf ofMexico, et al.
Hurricane Ike, floods, offshore damage
22,751
8 Sep. 2, 2004 U.S., Caribbean; Barbados, et al.
Hurricane Ivan, damage to oil rigs
17,218
9 Jul. 27, 2011 Thailand Floods caused by heavy monsoon rains
16,519
10 Feb. 22, 2011 New Zealand Earthquake (Mw 6.3), aftershocks
16,142
• Values shown are in millions• Property and business interruption losses, excludes life and liability losses.
Includes flood losses in the United States insured via the National Flood Insurance Program.
• *Adjusted to 2013 dollars by Swiss Re
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Future Problems• As climate change continues to be an issue, the
insurance industry will likely have to adapt its models
• Global climate models project an increase in the frequency of drought in normally dry regions and rainfall/flooding in normally wet regions
• A slight decrease in the frequency of tropical cyclones, but an increase in their average intensity and destructive potential
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What does this mean for the insurance industry?• All signs point to the climate becoming more
volatile and therefore presenting a greater risk of loss.
• It would be reasonable to assume that this would lead to an increase in the average car/home insurance premiums.
• As the weather becomes more extreme, property will be damaged much more often or the value of the loss will likely be greater.
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Works Cited• http://www.iii.org/fact-statistic/catastrophes-global• https://
www.soa.org/Research/Research-Projects/Risk-Management/research-2012-climate-change-reports.aspx
• http://www.valuepenguin.com/average-cost-of-homeowners-insurance
• http://www.dmv.org/insurance/how-gender-affects-auto-insurance-rates.php
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Questions?