Swiss Re warns nat cat insured losses could double in a decade
Insurance losses from natural catastrophes could double within a decade if the current trends of climate change, urbanisation, and the increasing frequency and severity of weather-related events continue, Swiss Re’s latest sigma report has warned.
In 2023, a year marked as the hottest on record, natural disasters caused $280 billion in global economic damages, with 40% or $108 billion insured — surpassing the ten-year average of $89 billion.
The rise in insured losses was primarily driven by event frequency, totalling 142 insured-loss inducing catastrophes for the year, which Swiss Re said is a “new record” as per the sigma threshold.
The report highlighted that annual global insured losses (inflation-adjusted) now regularly exceed $100 billion and have become a “standard”, largely due to an increase in “medium-severity events”, which typically cause losses of $1-5 billion.
Severe convective storms (SCS), which include tornadoes and significant hail incidents, have become particularly notable. In 2023, SCS-related insured losses reached a new peak of $64 billion, with Europe emerging as a rapidly growing hotspot for these events. Despite most SCS losses occurring in the US, European SCS losses have consistently topped $5 billion annually over the last three years, according to the Swiss Re data.
Italy, in particular, experienced significant impacts from SCS in its northern regions, setting new records for both the highest insured losses from a single SCS event in Europe at $5.5 billion and the largest hailstones ever recorded in Europe, up to 19 cm in diameter.
“These impacts have flagged that it is perhaps time to adjust associated risk assessment, with the severity of the losses having come as a shock to the industry – particularly given that insurance penetration in the residential sector is still relatively low,” authors wrote.
Europe accounted for over $100 billion of the total $280 billion in economic losses from natural catastrophes globally last year. The earthquake in Turkey and Syria was the biggest humanitarian disaster, claiming nearly 58,000 lives and resulting in $6.2 billion in insured losses. It was also the costliest industry event.
Additionally, the report noted that insured losses from large floods in urban areas in Europe hit nearly $5 billion last year, and across the world pushed inundation-related insured losses to $14 billion.
The report also highlighted that hailstorms are by far the largest contributor to insured losses from SCS, accounting for about 50-80% of such losses annually.
The growing impact of natural catastrophes on insurance claims, which has consistently outstripped GDP growth over many years, poses increasing challenges to the affordability of insurance, Swiss Re noted. This trend is expected to worsen due to the rapid evolution of risk landscapes driven by economic growth, urbanisation, the accumulation of insurable assets, and the intensifying hazards for certain perils and regions due to climate change, it warned.
“For the insurance industry to better deal with the loss developments of today and prepare for the weather of tomorrow, exposure modelling has to be done on the basis of up-to-date and more detailed exposure data,” authors argued.
“On the claims side, the initial estimation of a natural catastrophe loss event should not only be based on historical event data, but also reflect current insured values and inflation parameters at the time of the loss,” it said.
Analysts pointed out that the “loss creep” seen in several recent European nat cats show that they have been “massively underestimated”, exacerbated by an increasing shortage of skilled workers, loss adjusters and experts in addition to rising labour prices following large events, amongst others.
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