Why hurricanes in Miami might affect your premiums elsewhere.
As well as covering specific risks, Lloyd’s is also a global centre for ‘re-insurance’. This protects local insurances, by sharing out the risks involved on a global scale.
For example, imagine an insurer in Miami provides property insurance to homeowners in Florida, including cover for natural catastrophe perils. If a hurricane swept through the Florida Keys destroying and damaging swathes of property, this local insurer could go bust long before it could settle each claim.
So the combined risk from local insurers is broken into small packages and ‘re-insured’. Now, if disaster strikes, the cost is borne by lots of insurers in smaller financial chunks that can be more easily absorbed.
Unfortunately, a run of natural disasters year-after-year has led to an escalation of reinsurance claims that need to be recouped across the market. Hence general corporate premiums are on the rise.