Northridge Still Costliest Earthquake in U.S. History

Twenty years on, the Northridge earthquake remains the costliest U.S. earthquake for insurers, causing $15.3 billion in insured damages when it occurred (about $24 billion in 2013 dollars),according to the Insurance Information Institute (I.I.I.).

The 6.7 magnitude quake, which hit Los Angeles on January 17, 1994, also still ranks as the fourth-costliest U.S. disaster, based on insured property losses (in 2013 dollars), topped only by Hurricane Katrina, the attacks on the World Trade Center and Hurricane Andrew.

On the global scale, the Northridge earthquake still ranks as the second costliest earthquake for insurers, after Japan’s earthquake and tsunami of 2011, according to Munich Re.

While there has been no major earthquake on the U.S. mainland since Northridge, I.I.I. president Dr. Robert Hartwig notes that the potential cost of U.S. earthquakes has been growing because of increasing urban development in seismically active areas and the vulnerability of older buildings, which may or may not have been built or upgraded to current building code.

Still many homeowners do not purchase earthquake insurance. A recent poll by the I.I.I. found that only one out of 10 American homeowners (10 percent) have earthquake insurance, compared with 13 percent in 2012.

In western states, 22 percent of homeowners said they have earthquake coverage, down from 27 percent.

Earthquakes are not covered under standard U.S. homeowners or business insurance policies. However, coverage is usually available in the form of an endorsement to a home or business insurance policy.

As Dr. Hartwig reminds us:

While the cost of insurance has increased since Northridge, it’s important that home and business owners in California and other vulnerable areas consider purchasing earthquake coverage, which is the fastest and most efficient path to recovery.”

Check out additional I.I.I. facts and statistics on earthquakes and tsunamis.

The Orwell truth in our government

"Yes, Virginia, two plus two can equal five.  And since we're the U.S. Government, we can tell you that two plus two equals six."

Caution:  our Governmental system is now on full retard.

Today's GDP report was a complete Orwellian farce.  The annualized number for Q2 was reported to be 1.7%.  Of course, lost in the shuffle was the second massive downward revision for Q1 GDP, which was revised down again from 1.8% to 1.1%  What that means is that on an inflation-adjusted basis the first quarter GDP was negative - i.e. the economy is in a recession.

However today the Government rolled out its massive "revision" in the overall GDP level going all the way back to 1929.  In sparing you the ugly details, essentially the net affect of this was to raise the overall GDP level by $551 billion. How, you might ask?  The Government went all the way back to 1929 and reclassified all the money spent on "intellectual property products" and reclassified them as "investments" rather than expenses as incurred.  So, if you figure out a new way to remove the wrapper from a Hershey bar, the Government decided that 20% of the cost of that Hershey bar was an "investment" in making your life easier, so 20 cents of the dollar spent becomes an "investment" and added to the GDP.  While that may seem like an absurd analogy, it really isn't.  Here's the BEA's nice marketing flyer on this Orwellian change:  LINK

Of today's 1.7% annualized GDP estimate, .15 is attributed to the new "intellectual property products" and .41 is attributed to inventory build.  Why are businesses building inventory when consumer demand for everything except basic necessities is declining?  If you strip out the unneeded inventory build and erase the intellectual property garbage, the GDP is 1.2%. 

Recall that Q1 GDP was originally reported at 2.4%, revised the first time around to 1.8% and now has been taken down 1.1%.  Expect the same thing to happen to today's farce of a number.  As for the half-trillion dollars added to the overall level of GDP, there's only one reason this was conjured up:  it makes the Debt to GDP ratio look not quite as bad.  It goes from 105% of GDP to 101%.   Brace yourself for a big increase to the debt limit ceiling...

This is why it is very very wise to start investing into gold and silver for your retirement. Its good insurance to have incase the dollar crashes.

RMS: Storm Surge Risk Greater Than Hurricane Wind

As we approach the peak of hurricane season, catastrophe modeler RMS has warned that storm surge poses a greater risk than hurricane wind.

RMS says its updated North American hurricane model shows there is a 20 percent chance that storm surge loss will be greater than wind loss for any U.S. hurricane that makes landfall. And for the northeast coast of the U.S. the risk is even higher.

Dr. Claire Souch, vice president, model solutions at RMS says:

Our model shows there is a 20 percent chance that storm surge loss will be greater than wind loss for any U.S. hurricane that makes landfall, which rises to almost 40 percent along the northeast coast of the United States – this is a risk the market can no longer afford to ignore.”

RMS’ updated North Atlantic hurricane model suite includes the ability to fully quantify the risk from catastrophic hurricane-driven storm surge.

An earlier paper by RMS on Superstorm Sandy made the point that storm surge loss can drive more insurance loss than hurricane wind.

In the paper RMS noted that while Sandy was not even classified as a hurricane at landfall, it caused a Category 2 storm surge in New York City:

This is not the first time that storm surge has had a dominant effect. It was responsible for more than half of the total loss from 2005’s Hurricane Katrina, which was a Category 3 storm at landfall, but had a Category 5 equivalent storm surge.”

Recent analysis by CoreLogic estimates that more than 4.2 million U.S. residential properties are exposed to storm-surge risk valued at roughly $1.1 trillion, with more than $658 billion of that risk concentrated in 10 major metro areas.

According to I.I.I. facts and stats on flood insurance, Hurricane Sandy was the second costliest U.S. flood, based on National Flood Insurance Program (NFIP) payouts as of July 12, 2013.

Gold Is Still Relevant as Insurance Policy, Franklin’s Land Says.

Saw this on bloomberg, some very interesting information.

By Glenys Sim - May 21, 2013 11:15 PM CT

At a time when gold is in a bear market amid record outflows from investor holdings, bullion remains relevant in portfolios as inflation may accelerate, the U.S. dollar weaken and global economic growth stall, according to Franklin Templeton Investments.

“As part of an overall diversified portfolio, gold does serve a role because some of these things are still real risks as we look forward over the next 12 months,” said Steve Land, lead portfolio manager at the firm’s Franklin Gold and Precious Metals Fund (FKRCX), which has over $1.34 billion in assets under management. He spoke by phone from San Mateo, California.

Gold has slumped 18 percent this year and entered a bear market in April as investors sold the metal in favor of riskier assets, spurred by expectations that stimulus programs would be scaled back as the global economy recovers. Holdings in exchange-traded products shrank 17 percent this year, after climbing every year since the first product was listed in 2003, as U.S. equity indexes reached an all-time high.

Bullion is reversing a 12-year bull run even as central banks around the world including the U.S. Federal Reserve print unprecedented amounts of money to strengthen their economies. Analysts from Goldman Sachs Group Inc. to Credit Suisse Group AG and Deutsche Bank AG called for the metal to peak this year.

Gold for immediate delivery was at $1,377.21 an ounce at 11:41 a.m. in Singapore. Prices have retreated 28 percent from the record $1,921.15 in 2011.

Insurance Policy

“When you’re at your best health, you’re feeling good, that’s the time when your insurance policies are actually the cheapest,” said Land. “It’s been very volatile and painful on the way down but as a whole, a small allocation to gold as part of an overall portfolio still serves its purpose. Once you find out you’re sick it’s going to cost a lot more, it’s going to be a lot more expensive.”

Gold fell to the lowest in more than two years last month, unleashing a purchasing frenzy among coin and jewelry buyers from the U.S. to China and India, the largest consumers. Bullion’s premium on the Shanghai Gold Exchange, China’s largest cash market, remained above $20 for a fourth day yesterday, according to HSBC Securities (USA) Inc.

“I’ve been very encouraged by the very significant uptick in demand from coins and jewelry,” said Land. “People still believe in gold, they still want it. The next time around when investment interest comes back to the sector, it’s going to be that much harder to price that gold out of people’s hands and recreate some of those bars to fill the ETF vaults with.”

Paul Singer’s Elliott Management Corp. and John Paulson’s Paulson & Co. are among investors sticking with their bullish view even after they lost money on the metal. Paulson has said gold is the best protection against currency debasement and inflation, while Elliott said it remains the best store of value and will rebound as governments haven’t found a solution to their debt.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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Pictures, Mobile Apps and Insurers

The Wall Street Journal today reports on the shrinking size of the global digital camera market as the number of photos being snapped with smartphones rises exponentially.

Research cited by the WSJ via IDC suggests the global digital camera market may shrink to as little as 102 million units this year, compared with a peak of about 144 million in 2010, even as the global smartphone market has skyrocketed.

Meanwhile, some say that smartphone pictures taken by policyholders of their homes and vehicles are going to play an increasing role in the relationship between insurers and their customers.

An article in the latest edition of Visualize, a quarterly magazine by Verisk Insurance Solutions – Underwriting, makes just that point.

John Cantwell, vice president, marketing and business development, at Verisk, explains that huge volumes of data support the insurance industry, but only a tiny fraction of data records have any picture or image associated with the information.

The bottom line is that pictures contain valuable information and could be the next big insurance innovation if combined with mobile apps, Cantwell says.

While mobile apps developed to-date by insurers have offered functional capabilities, such as the ability to pay a bill or report a claim, or provided consumers with an optional sales channel in the form of a quoting app, Cantwell believes this is about to change.

For example, he suggests that the smartphone could offer an alternative to property insurance inspections:

Property inspections cost insurers about $100 million annually. You need to assess new methods to get the same information for less. Aerial imagery will soon be a viable alternative to exterior inspections, but if you need an internal inspection to complement an aerial image, how can you accomplish that without sending someone to the property? With smartphones.”

Verisk is currently developing mobile inspection applications designed to help insurance carriers connect with their customers and attract new customers. Such an innovation could also enable insurers to rate more accurately and help control fraud, Cantwell says.

We should mention that the easy-to-use I.I.I. home inventory app, Know Your Stuff – Home Inventory, has a feature that allows you to upload a photo of your property and possessions.

Other mobile apps harnessing pictures and insurance are sure to follow.

Wildfire Risk Potential Grows Amid Hot and Dry Weather

It’s mid-July and for many parts of the United States this means persistent hot and dry weather increases the risk of wildfires.

Some 46 percent of the contiguous United States is currently experiencing moderate to exceptional drought conditions, according to Tuesday’s report from the U.S. Drought Monitor.

The first monthly drought outlook from NOAA’s Climate Prediction Center recently warned that drought in the U.S. Southwest is exceptionally intense and unlikely to break completely, despite some relief from the summer thunderstorm season. Most of the already parched West will likely see drought persist or worsen, NOAA said.

Meanwhile, the Wall Street Journal reports that overgrown forest land poses fire risk to a growing number of communities.

It cites U.S. Forest Service statistics that 65 million to 82 million of National Forest lands are at a “high or very high risk of fire” and are in need of restoration.

Between 1960 and 1970, there was only one year, 1969, when wildfires burned more than five million acres in the U.S. In the last decade, it happened eight out of 10 years, the WSJ adds.

As of July 1, some 11 wildfire, heat and drought events have resulted in an estimated $365 million in insured losses in 2013, according to Munich Re.

Aon’s June Global Catastrophe Recap notes that the Black Forest Fire near Colorado Springs became the most damaging fire in Colorado’s history and left two dead. The fire charred 14,280 acres of land and destroyed at least 511 homes. Insurers received at least 4,500 claims with payouts in excess of $350 million. Due to dozens of destroyed uninsured or underinsured homes, the overall economic loss will approach $500 million, Aon added.

On June 30, 19 firefighters were killed while working to contain the Yarnell Hill Fire in Arizona. This is the deadliest event for firefighters since 9/11 and the third highest firefighter death toll attributed to wildfires.

More information is available via Insurance Information Institute (I.I.I.) facts and statistics onwildland fires and droughts and heat waves.