Thursday, December 11, 2008

Mumbai's Aftermath: Catastrophic Claim Writ (Very) Large

In the P&C side of the insurance business, a "Cat Claim" is one that arises from some unexpectedly severe natural or man-made occurrence. Typically, these would be large hurricanes or major earthquakes, or large-scale terrorist attacks such as last month's tragedies in Mumbai.
While we (correctly) focus on the human cost of such events, there was a lot of property damage as the result of explosions, gun-fire and the like. As one might imagine, all those hotels and, of course, death claims are beginning to add up, and are straining India's insurance capacity:
Claims from just the three hotels involved are expected to top $120 million, which represents about half of insurers' reserves. As a result, premiums are expected to increase sharply, and soon, especially for terror-related cover. India's insurance laws cap single claims at about $150 million, but that may not be nearly enough to cover the damages to the three long-standing hotels, which housed priceless artwork and historic artifacts.
Of course, things can be replaced, while people cannot, but this serves to remind us that even having "adequate" coverage in place may not be enough. That goes for hotels and artwork, and it goes for ourselves, as well.
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