Rising secondary perils a ‘wake-up call’ for insurers: Swiss Re
Global insured losses from natural catastrophes in 2018 were $76 billion, with over 60 percent resulting from so-called “secondary” perils - small-to-mid sized events or secondary effects of a primary peril, a Swiss Re sigma study has revealed.
2018’s insured losses represented the fourth highest in Swiss Re’s sigma records, and the combined insured cat losses for 2017-2018 were $219 billion, the highest ever on a two-year period.
2017 featured the highest ever aggregate natural disaster insurance claims in a single year - and over half were due to secondary perils.
According to the report, secondary perils come in two forms. The first are independent, high-frequency, low-to-medium severity loss events, for example river floods, torrential rainfall, landslides, thunderstorms, winter storms, drought and wildfire outbreaks. The second are events that occur as secondary effects of a primary peril, for example hurricane-induced precipitation, storm surges, tsunamis, liquefaction and fire following earthquakes.
Swiss Re explained that losses from secondary perils are rising due to urbanisation, a rising concentration of assets in areas exposed to extreme weather conditions, and climate change.
“The catastrophe loss experience of the last two years is a wake-up call for the insurance industry, highlighting a trend of growing devastation wreaked by so-called ‘secondary’ perils,” Swiss Re said.
“Insurers need to focus more on primary and secondary perils to be able to underwrite catastrophe business sustainably and build global resilience,” Swiss Re added.
Edouard Schmid, Swiss Re’s group chief underwriting officer, said: “Large losses from secondary perils are occurring more regularly. This is a trend the insurance industry must act on so that we can continue to underwrite catastrophe business sustainably.”
Jérôme Jean Haegeli, Swiss Re’s group chief economist, commented: “The existing protection gap is an opportunity for insurers to strengthen global resilience. Underwriting catastrophe business profitably means looking at peak and also forward-looking trends on secondary perils. By leveraging latest technology, insurers can focus more on developing appropriately regionalised models to assess the risk posed by secondary perils and develop a greater product range and targeted distribution for catastrophe covers.”
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