By the end of the year, the insurance industry will receive $100 billion in losses from natural disasters
The global insurance industry suffered $50 billion in losses from natural catastrophes in its worst start to the year since 2011, underscoring the challenge facing the sector from global warming. Reinsurers are demanding significantly higher prices for extreme weather coverage in response to rising losses.
According to a published study by Swiss Re, the losses were caused not only by climate change, which led to more extreme weather events, but also by the expansion of urban areas and the rising cost of their insurance. According to forecasts, insurers’ losses from natural disasters in 2023 will reach $100 billion.
2023 saw many significant natural disasters, bringing total year-to-date economic losses to over $295 billion, approaching the 21st century average of $310 billion. According to AON’s Global Catastrophe Recap, the quarter’s costliest event was massive flooding in Beijing and several Chinese provinces in early August. Total cumulative insured losses from natural disasters in the first three quarters are estimated to have exceeded $88 billion, and the number of billion-dollar events is already expected to set a record in 2023.
“The effects of climate change can already be seen in certain perils such as heat waves, droughts, floods and extreme precipitation,” said Jerome Jean Hegeli, the reinsurer’s chief economist. He said it was “time to invest in climate adaptation”, noting that “safeguards” needed to be put in place to keep insurance affordable for properties being built in at-risk areas.
Dynamics of global insured losses
So-called convective storms, characterized by heavy rain, strong winds and sudden changes in temperature, caused more than two-thirds of losses and became “one of the dominant global drivers” of insurance claims, according to a report by the Insurance Information Institute.
Losses from such events totaled $35 billion in six months, compared with an annual average of $18 billion over the past decade. Floods in New Zealand and Europe also contributed to a total of $50 billion.
The losses, which come just before the start of hurricane season, will heighten concerns about the industry’s ability to cope with natural disasters — annual losses of more than $100 billion are considered the “new normal” for the sector. The appearance of the El Nino weather phenomenon is expected to lead to even higher global temperatures.
In response to rising natural catastrophe bills—driven by material and labor cost inflation—reinsurers demanded significantly higher rates for reinsurance coverage. Natural disaster reinsurance prices in North America have increased by 43%.
Rising reinsurance costs are squeezing direct insurers. U.S. underwriter State Farm cited a “challenging reinsurance market” as well as “rapidly increasing vulnerability to catastrophes” when it announced it was ending homeowner insurance for new customers in California.
Total economic losses from natural disasters, including those not insured, totaled $120 billion in the first half of the year, with the February earthquake in Turkey and Syria a major contributor.
That total was more than 40% higher than the average over the past decade and was close to $123 billion in the first half of last year.
The UN’s Intergovernmental Panel on Climate Change has concluded that global temperatures have risen by at least 1.1°C since the pre-industrial era, with every fraction of a degree of warming leading to more frequent and extreme weather events.