The global insurance industry is grappling with an unprecedented challenge as the annual average loss from natural catastrophes reaches a staggering $133 billion, according to the latest findings from Verisk’s extreme event solutions models.
These figures, unveiled in the 2023 Global Modeled Catastrophe Losses Report, highlight a concerning trend of escalating losses over the past decade.
Bill Churney, President of Verisk’s extreme event solutions, attributes this alarming surge in catastrophe losses to several key factors.
The primary drivers include the growth in exposure values, fueled by ongoing construction in high-hazard areas, and rising replacement costs due to inflation.
While climate change is often cited as a factor, Churney emphasizes that year-over-year increases in exposure and replacement values exert a more immediate impact.
Moreover, the nature of the hazards contributing to these losses has evolved. Traditionally, hurricanes and earthquakes took center stage, but now flood, severe thunderstorm, and wildfire-related losses account for a significant portion of annual damages.
This shift is attributed to the increased frequency of these events and the higher value of properties at risk.
Severe thunderstorms have emerged as a major concern, with over 70 percent of insured losses in 2023 attributed to them.
In this year’s report, it is revealed that severe thunderstorms globally now account for nearly 40 percent of the Global Average Annual Loss (AAL) insured. Notably, the United States bears the brunt of these losses, constituting 21 percent of the global AAL.
Verisk’s analysis also underscores a critical issue – the global protection gap. The company estimates that global economic losses from natural catastrophes could exceed a staggering $400 billion.
This stark contrast between insured and economic losses highlights the immense challenge facing society. Insurance coverage varies significantly by region, with North America insuring approximately 51 percent of economic losses, while Asia lags behind at just 12 percent, reflecting low insurance penetration in these areas.
In response to these challenges, Bill Churney advocates for the continued use of probabilistic catastrophe modeling to understand risk comprehensively.
He urges (re)insurers to leverage these models, along with current exposure data, to contextualise recent losses while considering the influence of factors such as exposure growth, climate change, and the expanding role of hazards beyond hurricanes and earthquakes.
