Swiss Re warns growing catastrophe severity will drive larger losses in future
Natural catastrophes were the main driver of overall losses in 2019, amplified by socio-economic developments and climate-change effects, according to the latest sigma report by Swiss Re.
Total economic losses from natural and man-made disasters in 2019 are estimated to be $146 billion, down from $176 billion in 2018.
Of the total economic losses, $60 billion have been covered by insurance, down from $93 billion in 2018, and the 10-year annual average ($75 billion). The decrease in losses primarily stem from the absence of large and costly hurricanes in the US.
Natural catastrophes caused $137 billion of the losses, and man-made disasters caused $9 billion. Of the $60 billion in insured losses, natural catastrophes accounted for $52 billion.
The biggest industry loss events of 2019 happened in densely populated and developed parts of Japan: Typhoon Faxai in September (insured losses of $7 billion); followed by Typhoon Hagibis in October (additional insured losses of $8 billion).
Swiss Re warned that growing catastrophe severity will drive larger losses in the future and present a major threat to global resilience.
"Economic development and ever-increasing population concentration in urban centres, alongside changes in climate, will continue to increase losses due to weather events in the future," said Edouard Schmid, chairman of the Swiss Re Institute and group chief underwriting officer at Swiss Re. "Our industry can play a key role by partnering with clients and governments to develop scalable solutions that support the transition to a low-carbon world by managing risks associated with renewable energy projects and making these more attractive to investors with re/insurance risk-transfer backing."
Swiss Re noted that weather risks remain insurable, but insurers need to be wary of historical loss records while building risk models to account for socio-economic and climate trends.
"To uphold the insurance risk transfer model as a powerful tool to foster resilience, insurers need to adapt before, not post events," said Martin Bertogg, head of catastrophe perils at Swiss Re. "To this end, insurers should be wary of historical loss records in understanding today's state of the socio-economic environment and climate. Averaging out over a past spanning multiple decades can lead to distorted risk assessment."
Jerome Jean Haegeli, group chief economist at Swiss Re, added: "It's difficult to quantify the exact effects rising temperatures have on specific weather related catastrophes, but climate change is a threat that demands immediate action due to its dire effects on both human life and the global economy."
