Young man riding a motorcycle, accident, suffers catastrophic but non-fatal head trauma. Problem 1, part I: Requires assisted living for the rest of his life. Problem 2: He has the hormones of a young man, the muscles of a young man, but the intellectual capacity and emotional regulation of a baby. Requires a very specific type of assisted living care that can handle violent behaviour and possible sexual assault. Problem 1, part II: His lifespan is estimated to be longer than usual, because he can no longer do things like ride motorcycles, smoke cigarettes, or have a stressful job.
Put those things together, and the estimated total payout was well into eight figures. The motorcycle insurance company was on the hook for his care, and they had insured their portfolio, so everything over their $1,000,000 deductible (or whatever it was) fell on the reinsurance company.
Story #2 (also, 3, 4, 5, and so on, it’s a common thing for reinsurance companies):
Flood happens in a place where floods are uncommon, e.g. Tornado hitting Barrie, Ontario. Home insurance companies are hit with hundreds, even thousands of claims. Most are not in the eight figures, but insurance companies don’t just buy insurance against exceptional claims, they also buy insurance against single events like floods triggering unusually large numbers of claims that would otherwise fall below the deductible.
This is what reinsurance is for, so the interesting bit to me is what my client related: It seems that a statistically improbable number of people just happened to have all their furniture in the basement while they were painting their house or some such, and it all got ruined, so the insurer is on the hook for replacing furniture that wouldn’t normally be in the basement (we are not talking about people with furniture in finished basements, we are talking about people claiming they were storing furniture in their basements).
Normally they have the bandwidth to investigate such wild claims and reject most of them, but when they all come at once, the insurance company looks very bad if they tell everyone to wait a month or three while they work through a backlog of investigations. So they lay off their losses on the reinsurance ompany.
After regaling me with stories about improbable events and how much the reinsurance company had to pay, the GM of the office I dealt with told me that he owned two cottages:
One “entertaining” million-dollar cottage on a lake in Muskoka, Ontario, where one could jet-ski and power-boat.
And one “get away from it all” cottage on a different lake that had a 5km/hr speed limit, effectively barring motorized sports.
From this I deduced that for all their wild payouts, they were running a good business that could afford to pay its management quite handsomely.
To be clear: Floods, wild fires, and earthquakes are special, as they tend to impact a large area, instead of a single property. In many places, the gov't acts as the final re-insurance because no re/insurance company can possibly cover all possible damage without risking bankruptcy.
That reminds me of my parents putting my recently-died laptop in a particular place in my bedroom and pouring some water on it, after our hot water cylinder broke and leaked its contents above my bedroom destroying the roof (when I was a young teen).
Young man riding a motorcycle, accident, suffers catastrophic but non-fatal head trauma. Problem 1, part I: Requires assisted living for the rest of his life. Problem 2: He has the hormones of a young man, the muscles of a young man, but the intellectual capacity and emotional regulation of a baby. Requires a very specific type of assisted living care that can handle violent behaviour and possible sexual assault. Problem 1, part II: His lifespan is estimated to be longer than usual, because he can no longer do things like ride motorcycles, smoke cigarettes, or have a stressful job.
Put those things together, and the estimated total payout was well into eight figures. The motorcycle insurance company was on the hook for his care, and they had insured their portfolio, so everything over their $1,000,000 deductible (or whatever it was) fell on the reinsurance company.