Swiss Re has called for a better understanding of the key drivers behind emerging climate-related risks, after its latest Sigma report indicated that insured natural catastrophe losses climbed by some 3% in 2022 to $125 billion.
Natural disasters increased insurers’ costs in 2022, with inflation pushing up the bill even more, Swiss Re said, warning of likely further rises in the future due to climate change.
Economic losses caused by natural disasters amounted to $275 billion in 2022, down some 8% compared to the $303 billion in 2021, said the Zurich-based group.
Of those losses, $125 billion were covered by insurance – up 3.3 percent on 2021 – making it the second consecutive year in which insured losses from natural catastrophes topped the $100 billion mark, Swiss Re said.
Crucially, according to the report, rather than the physical destructive force of natural catastrophes themselves, the main driver of resulting high losses are economic growth, accumulation of asset values in exposed areas, urbanisation and rising populations, often in regions susceptible to natural perils:
“We expect that these and the evolution of a range of present-day risk factors like climate change effects and, of late, inflation, will continue to drive losses higher. Economic inflation has surged over the last two years, averaging 7% in the advanced markets and 9% in the emerging economies in 2022. Initially sparked by pandemic-induced supply chain disruptions and large monetary and fiscal stimuli, soaring food and energy prices due to the war in Ukraine have compounded inflation pressures.”
“The effect of high prices has been to increase the nominal value of buildings, vehicles and other insurable assets, in turn pushing up insurance claims for damage caused by mother nature. The impact has been most immediate in the construction sector. Increases in the costs for materials and labour because of shortages thereof have led to higher claims to cover the costs of building repairs. In the US, for example, the aggregate replacement cost of buildings in 2022 had risen by an estimated 40% since the start of 2020.”
Swiss Re added that the increases in loss severity in recent years and new risk drivers had a strong impact on the recent renewals, adding that accurately quantifying and pricing for shifts in the exposure landscape and underlying loss distributions is key to maintaining the insurability of natural catastrophe risks:
“After six years of elevated losses and with gaps in exposure data, however, there is scepticism that existing models fully capture the risks. The wide range of loss drivers, uncertainties and macroeconomic pressures… must be better understood if the re/insurance industry is to collect sufficient premiums for the risks it assumes. The re-pricing of property risks at the January 2023 renewals is a clear sign that past prices did not capture the recent loss dynamic.”
Hurricane Ian was by far last year’s costliest event, resulting in estimated insured losses of $50-65 billion. The storm ranks as the second-costliest natural catastrophe insured loss event after Hurricane Katrina in 2005. A category-four hurricane, Ian caused more than 150 deaths, almost all in Florida, where it made landfall on 28 September.
One of the most powerful storms ever to hit the United States, it flattened whole neighbourhoods and knocked out power for millions of people. Storm surges and immense downpours left even inland neighbourhoods submerged.
However, each region of the world suffered a major event, the report said.
In February 2022, storms Eunice, Dudley and Franklin in north-western Europe triggered combined insured losses of over $4 billion.
France saw its highest ever annual loss ($5 billion) from hailstorms at some $5 billion.
Global losses from floods were above average, the main event being flooding in eastern Australia in February-March 2022. This resulted in insured losses of $4.3 billion, the biggest natural catastrophe claims event ever in Australia, according to the report.
In Brazil, monsoon rains were below average, with crop yields, particularly soybean and corn, suffering most, resulting in insured losses of $1 billion.