The bread and butter of insurance as a public service is insurance claims. An insurance claim is when a client issues a formal request to their insurance company for compensation following a loss. The loss has to be covered by the insurance company in order to qualify for compensation.
When you hear about insurance coverage, you usually hear about a family getting paid for a life insurance policy, a person getting an injury compensated for, or someone who gets into a car crash having their repairs covered.
Today, however, we're looking at the world's biggest insurance claims — events so catastrophic that they rocked the world of insurance.
The crisis that swept the globe in 2008 did more damage than any financial crisis since the Great Depression of the 1930s. This crisis snuck up on people, happening due to a housing bubble created by cheap credit and lenient lending standards. The housing bubble popped, and many people found themselves without jobs and struggling to pay mortgages that were higher than the cost of their house.
In order to protect the financial institutions that so many people depend on, insurance companies had to roll out gigantic bail-outs, which crippled many insurance companies. It effectively changed the world of insurance, since insurers realized they couldn't keep the promises they were making. While this dealt the industry some damage, it helped it improve itself in the long run.
Eventually, insurance companies had to freeze how much they paid out, for fear of going into destitution themselves. The situation had tragic effects on many people and reminded the world that the most stable-seeming industries can all come falling down.
Many people look up to insurance companies as the "money people" that will get them out of tough situations. But when the money people run out of money . . . what do you do then? You could hardly blame the insurance industry for running out because reports say that they paid out over 21 trillion dollars — an almost comically large amount of money.
After 9/11, and the U.S. invasion of Iraq and Afghanistan, many people focused on the evils that humans do and forgot about the devastating effects acts of nature can inflict.
2005 shocked the world with the record-breaking numbers of the hurricane and tropical storms — 28 altogether. But no doubt, the most devastating among them were Katrina, Rita, and Wilma.
Katrina — perhaps the most famous of the bunch — caused close to 2,000 deaths and close to 125 billion dollars in damages. Rita followed up that September killing over 100 people and causing close to 20 billion dollars in damages. Wilma was close behind, causing 19 billion dollars worth of damage and killing 35.
The insurance industry didn't get out of it too well either, paying over 130 billion dollars in damages. Katrina alone caused 45 billion dollars worth of damages, a record that we hope won't get beaten any time soon.
However, this incident serves to prove how strong of an industry the insurance one is. After all, the insurance industry was built to help out against incidences of natural disasters. It also serves as a chilling reminder that as bad as humans can get, mother nature is always waiting around the corner with something just as nasty.
For that item on our list, we're jumping back into the world of finance and heading back to 2008. Younger readers might not remember them, but in the early 21st century, the Lehman Brothers truly meant something. They were the United States' fourth-largest investment bank behind Goldman Sachs, Morgan Stanley, and Merill Lynch, and had been around for well over one hundred years.
To many, Lehman Brothers served as a fine example of America's wealth and success. Anybody who worked in the financial world would have been proud to work for them. They possessed over 600 billion dollars in assets and 613 billion in liabilities.
However, all good things must come to an end.
Remember that housing bubble we talked about earlier? The one that caused the 2008 great recession? Well, it was in full swing by 2003-2004, and that is when the Lehman brothers opted to get into, not out of, the world of mortgage-backed securities and collateral debt.
At first, this looked like a good idea. Their real-estate acumen led them to increase revenues in the capital markets a great deal, and by 2007 they announced that they'd pulled in 19.3 billion dollars in revenue.
However, by 2007, cracks in the housing market began to become extremely apparent.
As stocks began to have record drops, Lehman reported that the risks were completely under control, and gaining more profit than ever before. They took a few hits to their stock market share as the value fell, but bounced back, and chose not to back out of their giant lending portfolio, despite the warning signs.
However as more and more hedge funds fell, people lost faith in Lehman Brothers. They began to sell their shares, fearing a collapse. On March 17th, 2008, Lehman Brothers shares plummeted nearly 48 percent.
We could tell you the rest, but you could mostly imagine how it went yourself. Lehman refused to pull back, expecting a turnaround any minute, eventually falling so hard that they filed for bankruptcy in September of 2008. This left insurance companies to pay out over 100 billion dollars to creditors, taxpayers, and investors.
With the recent invasion of the Taliban in Afghanistan, many people are having flashbacks to the tough times suffered after 9/11. On that fateful day in 2001, Islamic extremists crashed two planes into the towers of the World Trade Center, killing almost 3,000 people and injuring over 6,000
To the people of the world — particularly the people of America — 9/11 represented more than just the loss of life. It represented a successful attack on America and the west. It sent America into a war that they struggled with for years following and caused vast amounts of political turmoil.
It also impacted many businesses. Many Broadway shows bound for success had to close after 9/11. This was most likely due to the combination of the fact that New Yorkers were scared, depressed, and cautious, and the fact that tourists didn't want to fly on any plans following 9/11.
The attacks were designed specially to damage property, and that they did. They caused over 10 billion dollars in damages and 3 trillion dollars in total costs. Untoward levels of damages happened to families of the affected who found a tough time going on after.
The insurance industry took a hit as well, paying out over 40 billion dollars.
The early 2000s have been a tough span of twenty years. In just the first ten years you had 9/11, the 2008 eighth great recession, and the terrifying 2005 hurricane season. However, the next ten years also impacted the world, with Hurricane Sandy sweeping the globe in 2012, and the COVID 19 pandemic impacting millions.
Hurricane Sandy caused over 70 billion dollars worth of damages and killed 233 people across several countries.
Insurance companies had to pay out over 36 billion dollars in damages. However, Sandy is unique in the number of fraudulent claims attempted. Perhaps people realized just how much money was paid out in the 2005 season, and tried to capitalize on the storm.
At the end of the day, hundreds of claims were investigated and found to be fraudulent.
On March 11th, 2011, the fourth largest earthquake on record hit Japan, a shocking reminder that history keeps on rolling while we're alive. The earthquake clocked in at a remarkable magnitude of 9.0 and triggered a tsunami with waves up to 40.5 meters high.
These earthquakes and Tsunamis caused untoward levels of damage, causing the deaths of almost 16,000 people and the injury of over 6,000. It also caused the complete collapse of coastal roadways, infrastructure, and buildings.
35 billion dollars of covers were issued by insurance companies, despite 210 billion dollars of damage being caused.
Let's flash back to the '90s for a second, when Katrina, Rita, Wilma, and Sandy weren't concerns yet, and Andrew was the most dangerous hurricane around. Andrew killed 65 people and caused many injuries.
Hurricane Andrew caused insurance companies to pay about 25 billion dollars. This is comparatively small compared to some of the other items on this list, but it's still a lot of money.
The insurance companies weren’t ready for this, and after 600,000 insurance claims were filed, 11 insurance companies went out of business. This, in turn, caused close to a million Floridian policyholders to lose coverage.
For some information on how insurance companies work, check out our article on the subject.
While many of the world's biggest insurance claims injured the insurance industry, and in some cases caused various insurance companies to close, at the end of the day, the industry always bounced back. Can you imagine what people would have to go through if they didn’t have insurance after, say, Hurricane Katrina? This is why it’s important to always keep yourself covered.
While your own claims won't be nearly this big, insurance is still important. That's why we, at Insurdinary, have made it our mission to provide our clients with the best insurance companies available. If you're ready to get insured, get a quote with us today.