Swiss Re warns secondary perils on rise; main driver of H1 2020 insured cat losses
Swiss Re's latest Sigma report highlights the severity and dangers of so-called secondary perils, such as wildfires, which will likely exacerbate in the near future as a result of worsening climate crisis and rising temperatures globally.
Secondary perils caused most catastrophe losses in the first half of 2020, with thunderstorms in North America playing a significant role, according to Swiss Re Institute.
Insured losses from global catastrophe events during this period were estimated to be $31 billion, up from $23 billion a year earlier. The reinsurer, however, noted that this estimate may be subject to upward revision once the losses from the ongoing Atlantic hurricane season add up.
"Once again, secondary perils caused most catastrophe losses in the first half of 2020," said Martin Bertogg, head of cat perils in Swiss Re. "Climate change is expected to worsen and amplify the scale of secondary peril events and associated losses in the future."
Overall, catastrophe events resulted in global economic losses of $75 billion in the first half of 2020, up from $57 billion for the same period a year earlier. According to the report, this figure is well below the average of first-half economic losses of the previous 10 years ($112 billion).
Natural catastrophes accounted for $72 billion, up from $52 billion in the prior year period. The remaining $3 billion of losses were caused by man-made disasters, down from $5 billion for the first half of 2019. The decline was in part due to the COVID-19 pandemic lockdowns.
Of the total economic losses, only 40 percent ($31 billion) were covered by insurance. In the previous 10 years, first-half insured claims averaged $36 billion annually. Global insured losses from natural catastrophes rose to $28 billion in the first half of 2020 from $19 billion the year before, while insured losses from man-made disasters decreased to $3 billion from $4 billion.
These estimates are including property damage, and excluding COVID-19 related claims.
In North America, severe convective storms (thunderstorms with tornadoes, floods and hail) caused insured losses of over $21 billion in the first half. This was said to be the highest since the first half of 2011, when losses from this peril alone were around $30 billion. In June, Calgary in Canada suffered losses of $1 billion from hail damage, the costliest hailstorm event ever in Canada.
Starting from May, heavy rainfalls caused severe flooding, another example of secondary peril, in several provinces along the Yangtze River in China. Losses from fire events were mounting from the start of the year given the still burning 2019/2020 fire season in Australia, the longest (from September 2019 to February 2020) and most destructive ever.
In February, northern Europe was hit by two consecutive, intense windstorms (Ciara and Dennis), causing combined insured losses of more than $2 billion. Cyclone Amphan in the Bay of Bengal caused economic losses of $13 billion, the most destructive tropical cyclone that India has ever experienced. Swiss Re said the insured losses are expected to be just a fraction of the total.
Swiss Re noted that in the future, climate change and rising temperatures will likely exacerbate secondary perils, including wildfires.
"Around 60% of natural catastrophe losses in the first half of 2020 were uninsured. As the severity of secondary perils will likely increase in the coming years, the importance of the insurance industry in closing natural catastrophe protection gaps is very clear. Climate change is a systemic risk and unlike COVID-19 it doesn't have an expiry date", said Jerome Jean Haegeli, Swiss Re Group chief economist.
