period, especially the most recent period. If this was 2006 we’d be having a very different discussion than today after this apparent quiet period. One of the things that shows up in our historical record is in the late 1940s, early 1950s. there was the equivalent of a multibillion-dollar loss every year for a decade. We haven’t seen anything like that, even with the extreme years of 2004 and 2005.
So the first step I would think is understanding history and expanding out what’s possible and using that to inform your judgments of what might happen next year, not just the last decade or even the last two or three decades.
McDONALD: What you just said would apply equally to the Carolinas and into the Northeast, all the way back to Texas? Nothing has changed?
PIELKE: No. One of the advantages of focusing on places like Florida is you have so much experience that you do have a good sense of what risks are when it comes to storms going up the New England Coast or into Long Island, where we have such little experience. There’s a lot more I would say is fundamental ignorance, not just uncertainty. We just don’t know what we don’t know about loss potential. That’s why it’s really important to understand again what you can know with science and what you can’t.
McDONALD: Sanjay, in terms of coverage, especially the commercial coverage, what are you seeing in terms of how well-prepared the market is, how well-prepared the people that you speak with are? Do you think that, in general, coverages are sufficient? What do you see in terms of the limits people are choosing with the possibility of a hurricane?
GODHWANI: When you compare it to earthquake, people are better prepared for windstorm in the sense that they’ve been tested. They’ve seen frequency of events. Even if they haven’t been impacted, they’ve had other businesses that they may know and discuss with them the impacts. There’s more data. They can look at real data to make decisions on how much limit they need to buy.
They also probably spent more time being tested on the claims side, making sure they have vendors set aside and so forth. They’ve done a better job identifying the coverages they need. It’s readily available. Now the price point is the issue, right? The question is: do buyers make decision about how much they buy based on price? Do they buy less because of the current economic climate? That may be driving some decision-making.
McDONALD: Are you seeing softness in pricing?
GODHWANI: I’m seeing a relative modest flattening in pricing. If you’re a primary writer I think rates are still positive. But as you go up the tower, rates can be a little bit softer. It’s a short cycle as you’ve said, in catastrophic risk. That’s the hardest thing about property.
McDONALD: But if you take Roger’s point of view, which I can’t argue with, you shouldn’t be seeing these swings in price. It’s going to happen whether or not you have a soft or a hard market.
GODHWANI: I wouldn’t argue with you. My first argument always is about the catastrophe side of the game, that we should have a 10-, 15-, 20-year horizon. What we’ve set up in the marketplace is the client saying or us deciding a year without an event means you change price the next year. We can’t look at things that way. We try to talk about that and spend times talking about the fact that over a long-term period we both have to have a win.
McDONALD: How much of what you’re seeing in the market is dependent on either people’s short memories versus a tough economy? Obviously in a tough economy they’ll pull back a little and take a little more risk on their books.
GODHWANI: Decisions about pushing for price reductions are based on the last year, if there was no cat event.
McDONALD: Right.
GODHWANI: Decisions about cutting back on limits or changing, taking a larger deductible or a quota share position by a client, those are not necessarily based in my opinion on the lack of a windstorm or the fact that there was the lack of an event. Limit and deductible decisions are more economic-driven today. In quake I may see it differently.
McDONALD: Roger, I won’t ask you to pick a landfall number for 2010. But maybe for the century you might be willing to pick a landfall number. Does that kind of summarize what you were talking about?
PIELKE: Yes, right now the northern hemisphere is experiencing a multi-year decline in overall hurricane activity. I would say it’s just as easy to over-inflate the significance of that as it was after 2005 with Katrina to overplay the significance of that particular event. It’s important to keep a level head.
McDONALD: Brian, welcome. You’re the third horseman of today’s apocalyptic news.
FINLAY: I’ve been described as worse.
McDONALD: We’re going to talk about terrorism. Just like earthquakes, your topic is in the news. There was Fort Hood and the Christmas Bomber and now you have the trial coming up in New York City. Why don’t we start with the big picture here? Obviously there’s a threat of terrorism. How does it compare at this time versus other times?
FINLAY: That’s a great question, Lee. The tragedy obviously in Haiti this week knocks terrorism at least temporarily out of the headlines and out of our minds. We all suffer from a very short memory. It’s clear if history is our guide that this is an issue that will come back, and potentially in the very near future. If you look back at this most recent event that you referred to, the Christmas Day bombing, it really yields two lessons for us for the future.
Number one, we tend to think of terrorism and terrorist incidents as a singular event, the tragedy that was 9-11. But in fact if we look at it a little more broadly, just in the past decade Al Qaeda, certainly the most serious threat that this country faces, at least to the American homeland, perpetrated three very sophisticated attacks. In 1998 they destroyed two US embassies in Kenya and Tanzania. In 2000, they almost sank the USS Cole, an American Destroyer off the coast of Yemen. Then of course we had 9-11.
This Christmas Day attack, which amounted essentially to a relatively unsophisticated bomb being stitched into the underwear of a Nigerian national operating under an Al Qaeda franchise out of Yemen, indicates a couple of things. One, I