Saturday, May 26, 2012

The Insurance Industry: How strong is that safety net?

Among the fallout of natural disasters is the cost of rebuilding. Where does a lot of that financing come from? The government is one of the primary sources; however, the insurance industry is another source. Japan's earthquakes may cost insurance companies up to $34 billion. These insurance companies are also insured by reinsurer companies. They basically insure the insurance companies. This is a small group of companies and this coverage helps keep insurance companies' coverage lower.

It has been a tough 2 years for the insurance industry with disasters in Australia, Chile, New Zealand and now Japan. Fortunately, they are wellfunded; however, with a growing population, especially in areas known for natural disasters and the uncertainty with climate change, these well funded coffers may start shrinking. The result may be us paying more in insurance coverages. These expenses can grow significantly if any of the reinsurer companies go under, which at this time is not an issue. Also, the current expense for Japan may increase depending how the nuclear reactor situation plays out. Let's just all hope that we continue to remain in good hands.

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