Erdem Karaca is head of catastrophe perils, Americas, in New York for Swiss Reinsurance Co. Ltd. He recently spoke to Business Insurance reporter Matthew Lerner about the rising cost and impact of secondary perils such as flood and wildfire. Edited excerpts follow.

Q: What do the numbers tell us about the rise of secondary perils?

A: In a given year, secondary perils typically account for a majority of global insured losses due to their relatively high frequency. For example, in 2020 and 2021, more than 70% of the total insured losses from natural catastrophes experienced globally were due to secondary perils.

While we typically associate them with low to medium-sized losses, in 2021, Winter Storm Uri in the U.S. and the flooding in Germany and surrounding countries in July each led to more than a $10 billion insured loss.

Q: Must secondary perils be considered within an enterprise risk management program along with catastrophe perils?

A: Certainly, since they typically lead to higher losses in a given year relative to peak perils and their potential to create relatively severe losses in the several billions.

This can be especially important for less-diversified portfolios, such as regional insurance carriers that may be more exposed to impacts from certain secondary perils like wildfires in the Western U.S. or severe convective storms in the South-Central U.S.

Q: How fast and large is the wildfire threat growing? Are more resources and attention needed, such as modeling research?

A: Wildfire losses have been growing extremely fast due to climate change as well as exposure changes such as more people living in wildfire-prone areas. As opposed to many other catastrophes, wildfire risk is influenced by a confluence of natural and manmade factors such as climate change and variability as well as firefighting and mitigation efforts ranging from fuel clearance to emergency power shutoffs by utility companies.

Q: Can automation help with any of these challenges?

A: Automation and improved data collection efforts are underway or already in place in the industry. Some of these, for example, are geared towards improving the resolution and quality of exposure data via satellite imagery to better assess risk, which is typically more important for some secondary perils such as flood due to their highly localized nature.