1994: How do insurers think about riots and hurricanes?
AUDIENCE MEMBER: Good morning. I’m Marshall Patton (PH) from Bandera, Texas.
And back to the insurance losses. What is the comparison between natural disasters, such as the earthquake, and so on, and the LA riots?
WARREN BUFFETT: Well, I’m not sure what the connection —
They, you know, they obviously can both lead to super-cats that we insure against, because if there is enough insured damage, it’s likely to trigger a payment under some of our policies.
It would take some really big riot damage to get to our levels, because normally we don’t kick in now until an event gets up to at least, you know, $5 billion or so of insured damage under a very large majority of our policies.
Something like a quake causes a fair amount of damage that is not insured, because of the extent that it’s highways and things of that sort, public buildings. A lot of that is not insured.
But you get interesting questions on this. Usually we insure an event, but what’s an event? If you go back to the riots that occurred after Martin Luther King was shot, you had riots in dozens of cities.
Is that one event or is that a multiple number of events? I mean, it was started by different people, but maybe arising from a common cause. Some of those things aren’t actually very well-defined, even after hundreds of years of insurance law and custom, the experience of that. But I would say that rioting is very unlikely to get to a level that triggers our policy.
The big risks we face are quake and hurricanes, and hurricanes are a more significant risk than quake. They call them typhoons in the Pacific Ocean.
But floods, tremendous damage from floods last year. But basically there’s not a lot of private flood insurance bought, so the insured losses do not get large.
Just watch the Weather Channel. (Laughter)