Story first appeared in USA TODAY.
Tsunami in Japan. Drought in Texas. Floods in Pennsylvania. Hurricane and earthquake in New York. The news has been filled with examples of extreme weather that often are accompanied with the risk of property damage.
Property damage is one of the dirtiest terms in the insurance industry. Insurance companies' earnings are powered by collecting premiums and, conversely, hurt by paying out claims. If there's an increase in natural disasters that cause property damage that exceeds estimates, that can create a drag on earnings.
Furthermore, if catastrophes are expected to be more frequent in the future, insurance companies must either increase their reserves for claims, which hit earnings, or try to increase premiums.
To your question, does the rash of natural disasters potentially hit the earnings of insurers? On a short-term basis, the answer is yes. Analysts are accessing and measuring the estimated damage from all the events during the third-quarter and will likely make adjustments.
Since the third quarter is a busy month for hurricanes, analysts will look at the total hit through September and tweak their forecasts.
Longer term, some investors might wonder if insurance companies' earnings might be hit by changes in the planet's climate. Earth is warming up. And if the earth does heat up, there are some who expect more storms and other potential events that could damage property. But so far, there are too many unknowns before estimates on how any changes in the climate could hurt insurers' earnings.
Currently, companies are more focused on the short term and the risk of more catastrophic events.
