A new report from J.P. Morgan has stated that the recent California floods are unlikely to be a huge loss for the insurance industry.
The California floods hit from late December to early January. The state was hit with extreme rain and winds, leaving entire neighbourhoods under water, downing trees, and causing severe mudslides.
Data from the National Weather Service has shown that almost all parts of the state of California have seen 400-600% more rainfall than usual over the past few weeks. This was also accompanied by localized strong wind gusts and snow in several parts of the state.
The report states that economic losses from the floods are likely to be in the region of $30 billion, but they are unlikely to be a major loss for the insurance industry with insured losses only expected to be between $0.5 billion -1.5 billion, according to Moody’s RMS.
However, a recent estimate from Moody’s RMS also showed that total US economic losses from the recent flooding is expected to be between $5-7 billion.
Most US insurance policies exclude flood as standard, with the NFIP providing coverage. However, in California, only 13 in every 1,000 households buy additional cover from the NFIP, which means that there are many losses that are unlikely to be covered by insurance at all.
Further, the report reads that J.P. Morgan expects that the protection gap closing will wind up becoming a longer-term growth driver for reinsurance.
Over time, this gap should close with a bigger proportion of losses becoming insured, providing a clear growth opportunity for the reinsurance industry over the longer term.
The report highlighted that data from reinsurance giant Swiss Re, showed that globally, there was a 63% or $1.53 billion insurance protection gap between total economic losses and insured losses that resulted from catastrophes during 2011-21. This gap was 44% or $435 billion for the US over the same period.