The record global natural catastrophe losses between 2017-22 are a “wake-up call” for the industry to “better assess, manage, and transfer” the risks of future climate-related events, saids Mohsen Rahnama, Chief Risk Modeling Officer and Executive Vice President, Models and Data of Moody’s RMS.
Writing in the Moody’s RMS Catastrophe Review 2022, Rahnama highlighted how global nat cat events between 2017–21 caused $1.2 trillion in economic losses and close to $500 billion in insured losses, with 2022 also adding around $120 billion in insured losses, according to global reinsurance giant, Munich Re.
He states how these unprecedented losses that have taken place over the last six years, with an average loss of more than $100 billion per year, pose major challenges to “understanding, managing, and pricing future weather-related risks.”
Moreover, the industries’ challenges of dealing with unprecedented losses in recent years are mainly due to changes in the landscape of climate-related risks, with secondary perils such as flood, wildfire, and convective storms, along with large exposure changes, social inflation, and non-modeled losses, contributing significantly to overall economic and insured losses.
Rahnama warns that the significant increase in floods, convective storms, winter storms, wildfires, and heat stress events, “clearly shows the signature of climate change.”
Additionally, from the insurance perspective, these events have usually been considered as secondary perils. But, in recent years, the magnitude and frequency of these costly events have highlighted the rapidly changing landscape of risk.
Rahnama states that because of this, the industry and regulatory bodies must take different approaches to managing future risks.
Further, Rahnama notes that it is Moody’s RMS’ goal to partner with the industry as we move through these transformations.
He said: “We will manage rapidly changing future risks by updating our models to reflect lessons learned from recent events and providing flexibility within applications to enable clients to add their own views of risk.”
Lastly, Rahnama suggests that traditional P&C underwriting and risk management will need to go through an update, in light of changes in physical risk , due to the increase in frequency and severity of events caused by climate change.
“Going forward, insurers must evaluate and revise underwriting approaches to consider climate change in their risk selection process while also accounting for attritional losses, changes in exposure, undervaluation, and post-event loss amplification.”