Paul Poulos Actuarial Science

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.

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)

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 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

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

Falling tree branches caused by high winds

Hail Damage

Flooding caused by heavy rainfall

Tornadoes

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.

StateMonthy PremiumsAnnual Premiums% Change vs. Avg Florida $161.08$1, % Louisiana $139.33$1, % Texas$131.50$1, % Mississippi $117.42$1, % Oklahoma $115.50$1, % Alabama $96.92$1, % Rhode Island $94.92$1, % Kansas $91.92$1, % New York $91.42$1, % Connecticut $91.33$1, % States With the Highest Average Homeowners Insurance Costs

States With the Lowest Average Homeowners Insurance Costs StateMonthy PremiumsAnnual Premiums% Change vs. Avg Iowa $59.42$ % Nevada $57.42$ % Arizona $56.25$ % Delaware$55.33$ % Ohio $53.67$ % Washington $52.17$ % Wisconsin $49.33$ % Utah $46.92$ % Oregon $46.58$ % Idaho $43.17$ %

Large scale natural disasters account for the majority of the largest insurance losses in history.

RankDateCountryEventInsured loss* 1Aug. 25, 2005U.S., Gulf of Mexico, Bahamas, North Atlantic Hurricane Katrina, storm surge, levee failure, damage to oil rigs $80,373 2Mar. 11, 2011JapanEarthquake (Mw 9.0) triggers tsunami, aftershocks 37,665 3Oct. 24, 2012U.S., et al.Hurricane Sandy, storm surge36,890 4Aug. 23, 1992U.S., BahamasHurricane Andrew, floods27,594 5Sep. 11, 2001U.S.Terror attacks on WTC, Pentagon and other buildings 25,664 6Jan. 17, 1994U.S.Northridge earthquake (M 6.6) 22,857 7Sep. 6, 2008U.S., Caribbean: Gulf of Mexico, et al. Hurricane Ike, floods, offshore damage 22,751 8Sep. 2, 2004U.S., Caribbean; Barbados, et al. Hurricane Ivan, damage to oil rigs 17,218 9Jul. 27, 2011ThailandFloods caused by heavy monsoon rains 16,519 10Feb. 22, 2011New ZealandEarthquake (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

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

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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