As 2018 losses again exceed historical average, Munich Re questions models
Losses for insurers stemming from natural catastrophes were substantially higher than the long-term average in 2018 with an eventful second half of the year contributing to a high overall loss figure of $160 billion, half of which was insured, according to a report by Munich Re.
The report said that a notable point on last year’s losses was that there were clear indications of the influence that man-made climate change has had on devastating wildfires in California, which, like the year before year, again caused billions in losses in 2018.
The $160 billion of losses were above the inflation-adjusted average for the last 30 years ($140 billion). But 2018 losses were below the extremely high losses of 2017, which had totalled $350bn and were due mainly to record hurricane losses.
At $80bn, insured losses were substantially above the inflation-adjusted average for the last 30 years ($41bn), but below last year’s record figures ($140bn).
The most expensive natural catastrophes occurred in the US: the costliest events were “Camp Fire”, a wildfire in northern California with overall losses of $16.5bn and insured losses of $12.5bn, and Hurricane Michael (overall losses of $16bn, and insured losses of $10bn).
The sustained drought which caused substantial agricultural losses and many wildfires was Europe’s costliest natural disaster of the year. Direct losses came to $3.9bn (€3.2bn), with only a small proportion of these losses insured. Low water levels on many rivers lasting well into the autumn impacted river traffic and thus also freight transport and the economy.
The reinsurer has also suggested that insurers need to examine to what extent these events are factored into their risk models.
Torsten Jeworrek, member of Munich Re’s Board of Management, said: “2018 saw several major natural catastrophes with high insured losses. These included the unusual phenomenon of severe tropical cyclones occurring both in the US and Japan while autumn wildfires devastated parts of California.
“Such massive wildfires appear to be occurring more frequently as a result of climate change. Action is urgently needed on building codes and land use to help prevent losses. Given the greater frequency of unusual loss events and the possible links between them, insurers need to examine whether the events of 2018 were already on their models’ radar or whether they need to realign their risk management and underwriting strategies."
Ernst Rauch, head of Climate and Geosciences at Munich Re, added: “Our data shows that the losses from wildfires in California have risen dramatically in recent years. At the same time, we have experienced a significant increase in hot, dry summers, which has been a major factor in the formation of wildfires. Many scientists see a link between these developments and advancing climate change. This is compounded by man-made factors such as burgeoning settlements in areas close to forests at risk from wildfire. The casualties and losses are immense, and measures to prevent fires and damage are vital. Insurers also need to take account of the rising losses in their risk management and pricing.”
Get all the latest re/insurance industry news with our daily newsletter - sign up here.
More of today's news
Everest Re launches search for new CEO to replace Addesso
Liberty Mutual strikes new $150m Limestone Re deal despite ‘challenging conditions’
AXIS hires new chief analytics officer from Allstate
Argo renews sidecar Harambee Re for 2019
Verisk launches new technology for travel underwriters
Argo unveils Bermuda, international casualty leadership changes
Tasker hires CFO from Marsh unit Jelf
