Special report: Extreme weather batters the insurance industry

Wed Feb 9, 2011 9:19am EST
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By Ben Berkowitz

NEW YORK (Reuters) - In Chester County, South Carolina, off a dirt road in the middle of a field, insurance companies are literally unleashing a storm.

To simulate hurricane-like conditions, an industry group has built a wind tunnel big enough to accommodate nine large residential homes. Some 105 fans deliver gusts of 175 miles per hour, destroying dwellings built precisely for this purpose.

The goal is to construct homes across the country that can withstand the worst Mother Nature has to offer, which lately has been quite a lot -- not to mention tough if not impossible for insurers to predict.

"One thing we as a society don't really do anymore is build for where we live. We build for how we want to live," said Julie Rochman, chief executive of the Institute for Building and Home Safety, the industry-sponsored group behind the wind tunnel initiative. "There's a wonderful ability to be living in denial and where disaster happened a long time ago we get disaster amnesia."

It's a tough time to be in the $500 billion U.S. property insurance business. Storms are happening in places they never happened before, at intensities they have never reached before and at times of year when they didn't used to happen.

Those bizarre weather patterns damage not just homes but also insurance companies' financials. If seas rise and houses flood, insurers pay. If winds shift and buildings blow down, they also pay. If temperatures rise and crops fail, same thing.

The industry hasn't reached a consensus on what's causing weird weather.

"It's hard to really deny that global warming exists," said Karen Clark, chief executive of Boston-based Karen Clark & Co., which helps insurance companies forecast natural disasters. "You can accept that and that's fine, but that doesn't mean we can quantify the impacts."   Continued...